The Bank of Japan (BOJ) is set to take a bold step, with a majority of economists predicting a significant policy shift. A potential interest rate hike to 1% by June is on the horizon, a move that could reshape Japan's economic landscape.
In a recent Reuters poll, economists revealed their expectations for the BOJ's next move. The consensus? A rate hike sooner than previously forecast, with some predicting an increase as early as April. This decision is driven by growing concerns about inflation and the weakening yen.
The poll, conducted after Prime Minister Sanae Takaichi's landslide election victory, highlights a shift in the consensus view for the next hike from September to June. This change is significant, indicating a potential acceleration in the BOJ's monetary policy tightening.
In December, the BOJ already raised rates to a 30-year high of 0.75%, signaling its commitment to further hikes. Many global central banks are nearing the end of their rate-cutting cycles, and the BOJ seems poised to follow suit.
Markets are watching closely to see if Takaichi will continue advocating for low interest rates. In the February poll, all 76 economists agreed that the BOJ would maintain steady rates at its March meeting. However, 58% of them expect a policy rate hike to 1% by June, a significant increase from the previous month's predictions.
Marcel Thieliant, head of Asia-Pacific at Capital Economics, commented, "The BOJ is in a hawkish mood, and we could see the next rate hike as soon as April." Kento Minami, senior economist at Daiwa Securities, added that the BOJ is likely to proceed with further increases at a relatively brisk pace, mindful of inflation risks.
The yen's recent movements are also a key factor. After approaching the psychologically important level of 160 yen per U.S. dollar in January, the yen gained nearly 3% last week, its largest rise since November 2024. This gain was partly fueled by speculation that Takaichi's victory would strengthen her position against opposition parties pushing for steeper tax cuts and broader outlays.
However, analysts remain cautious about the fiscal implications of Takaichi's agenda. In the poll, over 57% of economists expressed concern that a proposed two-year suspension of the consumption tax on food and beverages could strain public finances.
Atsushi Takeda, chief economist at Itochu Research Institute, warned, "Fully ending the consumption tax reduction after two years would be challenging, leaving fiscal risks."
To address further yen weakness, two-thirds of respondents anticipate another intervention in the currency market. Among them, 40% believe the 160 yen per dollar mark is the most likely trigger for action.
In terms of wage negotiations, around 52% of respondents expect pay increases this year to fall below last year's 5.25% mark. The median expectation among 29 economists is a 5.2% growth in wages, slightly higher than the 5.0% predicted in December and 4.9% in November.
This story is part of the Reuters global economic poll series. Reporting and polling were conducted by Satoshi Sugiyama, Susobhan Sarkar, and Vijayalakshmi Srinivasan, with editing by Ross Finley and Shri Navaratnam. The Thomson Reuters Trust Principles guide our reporting on breaking news and economic indicators.
