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BOJ to speed up tightening, raise key rate to 1.25% in September: Reuters poll
🇸🇬 Singapore /Economy & Trade

BOJ to speed up tightening, raise key rate to 1.25% in September: Reuters poll

From CNA · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

Newswire From a news agency Context piece
  • A majority of economists surveyed by Reuters expect the Bank of Japan to raise interest rates again in September, moving more quickly than previously anticipated.
  • The poll indicates a higher terminal rate than previously forecast, influenced by inflation concerns and yen weakness.
  • A joint yen-buying intervention by Japan and the U.S. last month was deemed largely ineffective by most respondents.

The Bank of Japan is expected to accelerate its monetary tightening campaign, with a majority of economists predicting another interest rate hike in September. This forecast represents a significant shift from earlier expectations, with polls now indicating a faster pace of increases and a potentially higher terminal rate.

Economists cited growing concerns about inflation, partly stemming from geopolitical tensions, and persistent selling pressure on the yen as key drivers for the anticipated policy shift. Despite a rare joint currency intervention by Japan and the U.S. last month aimed at stemming the yen's decline, many respondents believe the action had limited effectiveness.

The Reuters poll, conducted between August 17-24, found that 57% of economists expect the BOJ to raise rates in September, a sharp increase from just 5% in a July poll. Ayako Fujita, chief Japan economist at JPMorgan Securities, noted that postponing a hike after market expectations have largely priced it in could destabilize markets, making an "early policy adjustment... unavoidable."

Since the market has already largely priced in a September rate hike, postponing such a hike would likely destabilize the market. An early policy adjustment has become unavoidable.

— Ayako FujitaThe chief Japan economist at JPMorgan Securities explains why the Bank of Japan is likely to proceed with a September rate hike.

Looking beyond this year, nearly two-thirds of analysts anticipate the policy rate to reach at least 1.5% by the end of March next year, and around 60% foresee it hitting at least 1.75% by the third quarter of 2027. Half of the respondents indicated that 1.75% would be the terminal rate, up from 19% last month, with a growing share expecting it to reach 2% or above.

Furthermore, the survey revealed that 89% of economists believe Prime Minister Sanae Takaichi's fiscal policy, including planned tax cuts, would contribute to yen weakness due to funding concerns. Kyohei Morita, chief economist at Nomura Securities, warned that the administration's fiscal policy "raises inflation expectations and intensifies concerns the BOJ is falling behind the curve."

The Takaichi administration's fiscal policy ... raises inflation expectations and intensifies concerns the BOJ is falling behind the curve.

— Kyohei MoritaThe chief economist at Nomura Securities comments on the potential impact of the current administration's fiscal policies on inflation and the BOJ's monetary stance.
DistantNews Editorial

Originally published by CNA in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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