December, not October, seen as likely timing for BoJ rate hike – Reuters poll

A third rate rise since June is the majority forecast for the Bank of Japan’s December meeting, a Reuters poll showed.

Oil exceeded $100 per barrel during the year as the US-Iran conflict and the Russia-Ukraine war drove up energy prices. With Japan, a net energy importer, facing higher prices and a weaker Yen, more forecasters now anticipate at least two rate rises in 2027.

Significant upside risks to inflation mean the central bank should avoid excessive caution over rate rises, BoJ member Junko Koeda said.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A December rate rise is expected by 54 of the 78 analysts surveyed. For October, the forecast is for the BoJ to leave rates unchanged.

Many BOJ officials would prefer to review further data on the impact of earlier rate rises on financial conditions, sources told Reuters.

By late June 2027, the BoJ is expected to have raised rates to 1.75%, according to 39 of 65 analysts, or 60%, in the survey.

Bank of Japan: Key Questions

Bank of Japan: Role and Mandate

Japan’s monetary policy is set by its central bank, the Bank of Japan (BoJ). The institution is mandated to issue banknotes and manage currency and monetary conditions to maintain price stability. This translates into an inflation target of around 2%.

Bank of Japan: Monetary Policy Record

Against a backdrop of low inflation, the Bank of Japan adopted ultra-loose monetary policy in 2013 to support the economy and lift price growth. Quantitative and Qualitative Easing (QQE) underpins this approach: the bank prints notes to purchase assets, including government and corporate bonds, supplying liquidity. Further easing followed in 2016, when the bank reinforced its strategy by introducing negative interest rates before moving to direct control of the yield on its 10-year government bonds. A rate increase in March 2024 marked the BoJ’s effective retreat from its ultra-loose stance.

Bank of Japan Decisions: Impact on the Japanese Yen

The Yen weakened against its major currency peers under the Bank’s extensive stimulus programme. Depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other major central banks. Those banks raised rates sharply to tackle inflation at multi-decade highs. The BoJ’s stance widened interest rate differentials with other currencies, putting downward pressure on the Yen. A partial reversal followed in 2024, when the BoJ chose to exit its ultra-loose policy stance.

Bank of Japan: Reasons for the Ultra-Loose Policy Exit

Japanese inflation climbed above the BoJ’s 2% target as the Yen weakened and global energy prices surged. Expectations of domestic wage growth, a key driver of inflation, also helped prompt the decision to begin unwinding ultra-loose policy.