A majority of economists surveyed in a recent Reuters poll project the Bank of Japan (BOJ) will raise its benchmark interest rate by July, with over three-quarters of respondents forecasting the rate will reach 1% or higher by the end of September. The poll indicates a growing consensus among market watchers regarding the central bank’s next steps to normalize its monetary policy.
The survey, which polls economists regularly on their outlook for Japan’s economy, provides insight into market expectations following the BOJ’s landmark policy shift in March. In that decision, the central bank ended eight years of negative interest rates, setting its new short-term policy rate in a range of 0% to 0.1%. It was Japan’s first interest rate hike in 17 years.
According to the specific findings of the Reuters poll, a significant portion of the economists surveyed anticipate at least one more rate increase within the next few months. The forecast of a 1% rate by the end of the third quarter would represent a substantial tightening from the current level.
These expectations are forming against a backdrop of persistent weakness in the Japanese yen and inflation that has remained at or above the BOJ’s 2% target for over two years. The yen’s depreciation against the U.S. dollar has increased the cost of imports, contributing to inflationary pressures on households and businesses.
Bank of Japan Governor Kazuo Ueda has stated that the central bank will guide its policy based on underlying inflation trends and economic data. Officials have indicated that future rate increases will be gradual and dependent on confirmation that a virtuous cycle of wage growth and price increases is firmly in place.
While the Reuters poll shows a strong majority predicting further rate hikes, the exact timing and pace remain subjects of observation. The Bank of Japan’s policy board is scheduled to hold meetings in June, July, and September, which will be closely monitored for any signals or changes to its monetary stance.
