The Bank of Japan faces a "terrifying dilemma" in which inflation could force it to tighten monetary policy at a time when the central bank needs to support the bond market the most, according to a former board member.

There's about a 50 percent chance the BOJ will achieve its 2 percent goal for consumer-price increases, which could push the 10-year yield above 3 percent, said Kazuo Ueda, who served as a BOJ policymaker from 1998 to 2005 and was also senior adviser to the Government Pension Investment Fund.

Bond market expectations for inflation have risen to 1.36 percent from 0.94 percent in October, data compiled by Bloomberg show.