A pre-December BOJ rate hike would accelerate yen appreciation pressure and tighten the interest rate differential with the Federal Reserve and ECB at a time when those central banks are themselves navigating uncertain policy paths. Japanese government bond yields would face upward pressure across the curve if the market begins to price an earlier move, with knock-on effects for global fixed income given Japan's position as a major holder of foreign bonds. The divergence between the headline core CPI reading of 1.4% and the potential inflation measure running near 3% creates a communications challenge for the BOJ, as markets assess which gauge the board treats as most policy-relevant. Any signal from Governor Ueda that the potential inflation measure is gaining weight in board deliberations would be a material hawkish catalyst.---A former senior BOJ official says the central bank's next rate hike is likely before December, citing a potential inflation measure averaging near 3%, well above the 2% target, per Bloomberg. Summary:Former Bank of Japan executive Kenzo Yamamoto said the next BOJ rate increase is likely to arrive before December, earlier than the consensus economist forecastA BOJ measure of potential inflation excluding fresh food and government subsidies has averaged approximately 3% over the past four years, above the central bank's 2% targetJapan's core CPI excluding fresh food stood at 1.4% in May, a level Yamamoto attributed primarily to Prime Minister Sanae Takaichi's cost-of-living relief measures rather than underlying price weaknessThe BOJ's own assessment is that price trends remain slightly below 2%, a characterisation Yamamoto said would be concerning if it led the board to discount the potential inflation measureYamamoto said policy should shift toward actively reining in inflation rather than maintaining the current accommodative stanceA former senior Bank of Japan official has said the central bank's next interest rate increase is likely to come before December, pushing back against the consensus view among economists that the BOJ will hold until the final month of the year.Kenzo Yamamoto, a former BOJ executive, told Bloomberg that the case for an earlier move rests on an underlying inflation gauge that has remained persistently elevated well above the central bank's 2% target. The BOJ's potential inflation measure, which strips out fresh food and the effect of government subsidies, has averaged around 3% over the past four years, a reading Yamamoto said reflects genuine price pressure rather than the transitory or policy-distorted dynamics visible in the headline numbers.Japan's core CPI excluding fresh food came in at 1.4% in May, a figure that sits comfortably below target and has led the BOJ to maintain that price trends remain slightly below 2%. Yamamoto attributed the subdued headline reading largely to Prime Minister Sanae Takaichi's cost-of-living relief measures, which have actively suppressed the consumer-facing price level. Strip those subsidies out, he argued, and the underlying inflation picture looks considerably less benign.The distinction matters for policy timing. If the BOJ takes the headline core CPI at face value, the case for patience remains intact and a December move appears reasonable. But if the board places greater weight on the potential inflation measure, the argument for acting sooner becomes harder to dismiss. Yamamoto said he would be concerned if the BOJ treated its own potential inflation gauge as an unreliable signal of price trends, warning that such an interpretation would risk allowing inflation to become more entrenched.His remarks carry particular weight given his familiarity with the institution's internal deliberations. While former officials do not speak for current policy, Yamamoto's framing of the inflation debate reflects tensions that are likely live within the board itself, as the BOJ navigates the gap between a government-influenced headline CPI and a structural inflation picture that, by at least one internal measure, has been running above target for years. This article was written by Eamonn Sheridan at investinglive.com.