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BoJ expected to raise rates in December rather than October, Reuters poll shows
A majority of economists surveyed by Reuters forecast a Bank of Japan rate rise at its December meeting, which would be the third increase since June.
Oil traded above $100 per barrel during the year as the US-Iran conflict and the Russia-Ukraine war drove energy prices higher. With Japan, a net energy importer, facing rising prices and a weaker Yen, more forecasters now anticipate at least two rate rises in 2027.
Citing significant upside risks to inflation, BoJ member Junko Koeda said the central bank should avoid becoming excessively cautious about increasing rates.
Of the 78 analysts polled, 54 forecast a December rate rise. For October, however, the BoJ is expected to leave rates unchanged.
According to sources speaking to Reuters, many BOJ officials would prefer to examine further data on the impact of earlier rate increases on financial conditions.
Looking ahead to 2027, the survey found that 39 of 65 analysts, or 60%, expect the BoJ to lift rates to 1.75% towards the end of June.
Bank of Japan: Key Questions Answered
As Japan’s central bank, the Bank of Japan (BoJ) determines the country’s monetary policy. It is tasked with issuing banknotes and exercising currency and monetary control to maintain price stability, defined by an inflation target of around 2%.
Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to support economic activity and lift price growth. At the heart of its approach is Quantitative and Qualitative Easing (QQE): printing banknotes to purchase assets, including government and corporate bonds, and thereby supplying liquidity. The bank intensified this strategy in 2016, easing policy further by introducing negative interest rates before moving to direct control of its 10-year government bond yield. A rate increase in March 2024 marked the BoJ’s effective retreat from its ultra-loose stance.
The Yen weakened against its major currency peers as a result of the Bank’s substantial stimulus programme. That depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other leading central banks, which raised interest rates sharply to tackle inflation at multi-decade highs. By widening interest rate differentials with other currencies, the BoJ’s approach weighed on the Yen. The trend reversed in part during 2024, following the BoJ’s decision to move away from ultra-loose policy.
Japanese inflation rose above the BoJ’s 2% target as the Yen weakened and global energy prices surged. Expectations of higher domestic salaries, a key driver of inflation, also helped prompt the policy shift.
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