A Reuters poll of economists shows 57% now expect the Bank of Japan to raise its key rate to 1.25% in September, up sharply from 5% in July. The shift follows persistent yen weakness that last month's joint Japan-US currency intervention failed to reverse, with Prime Minister Sanae Takaichi's fiscal policy also flagged as a drag on the currency.
Economists pull forward their rate-hike timeline
The Bank of Japan looks set to move faster on interest rates than economists expected just a month ago. A Reuters poll conducted August 17-24 found 57% of economists expect the BOJ to raise rates to 1.25% next month, compared with only 5% who held that view in July. Ten of 58 respondents expect a further hike to 1.5% in October or December.
Ayako Fujita, chief Japan economist at JPMorgan Securities, warned that postponing a September hike would likely destabilize markets. According to Reuters: "An early policy adjustment has become unavoidable." The BOJ raised rates to a three-decade high of 1% in June.
Terminal rate expectations also move higher
The shift extends beyond September. Nearly two-thirds of analysts, 35 of 54, now expect the policy rate to reach at least 1.5% by end-March next year, three months earlier than the July poll suggested. Around 60% foresee the rate reaching at least 1.75% by the end of Q3 2027.
Among a smaller group asked specifically about the terminal rate, half of 36 respondents named 1.75% as the eventual peak, up from just 19% a month earlier. The share choosing 2% or above rose to 36% from 23% in July.
Intervention and fiscal policy keep the yen under pressure
Japan and the US launched a rare joint yen-buying intervention last month after the currency hit 40-year lows. Yet more than two-thirds of respondents, 18 of 26, said the intervention was not very effective or not effective at all, saying it only delayed rather than resolved the underlying pressure on the yen.
Fiscal policy is compounding the problem. 89% of economists, 25 of 28, said Prime Minister Sanae Takaichi's fiscal policy would contribute to yen weakness, pointing to lingering doubts over how planned tax cuts on food items and investment spending would be funded. Nomura Securities chief economist Kyohei Morita said the fiscal policy is pushing up inflation expectations and adding to worries the BOJ is losing ground on tightening.
Sources: Economy News, Investinglive RSS Breaking News Feed
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