The Bank of Japan's determination to drive inflation to 2 percent risks sparking a damaging upward spiral in the cost of living, according to a former deputy governor.

Prices of many products will need to rise at a faster rate than the goal to make up for a drag on the inflation index from distorted housing costs in the gauge, said Kiyohiko Nishimura, 62, who heads a government statistics panel. The upshot: the BOJ is aiming for inflation that is "significantly" higher than its target implies, he said.

"The BOJ may say there's 2 percent inflation, but if ordinary people perceive it to be 3 percent, inflation expectations will be more than it predicts," Nishimura said in his first interview since leaving the BOJ in 2013. "That could lead to an upward spiral in inflation."