By Satoshi Sugiyama
TOKYO, Aug 26 (Reuters) – The Bank of Japan will move more swiftly than previously expected and raise interest rates again in September, a majority of economists said in a Reuters poll, with the terminal rate also likely to be higher.
Poll results reflect in part the Japanese central bank’s growing wariness about inflation stemming from the U.S.-Israeli war with Iran, but also persistent selling pressure on the yen, despite last month’s rare Japan-U.S. currency intervention.
Reuters reported earlier this month that the BOJ was set to raise rates as soon as September and was considering hiking more aggressively thereafter, compared with its current pace of roughly twice a year.
A nudge from U.S. Treasury Secretary Scott Bessent also strengthened expectations the BOJ will move in September.
The August 17-24 survey showed 57% of economists expected the BOJ to raise interest rates next month, a sharp turnaround from a July poll, when just 5% expected a move this quarter. A minority, 10 of 58, expected it to follow with another hike to 1.5% in either October or December.
“Since the market has already largely priced in a September rate hike, postponing such a hike would likely destabilize the market,” said Ayako Fujita, chief Japan economist at JPMorgan Securities. “An early policy adjustment has become unavoidable.”
The central bank raised rates to a three-decade high of 1% in June.
Beyond this year, nearly two-thirds of analysts, 35 of 54, expected the policy rate to reach at least 1.5% by end-March next year, three months earlier than predicted in July’s poll. Around 60% foresaw the rate reaching at least 1.75% by end-Q3 2027.
Half of 36 respondents who answered an extra question said 1.75% would be the terminal rate compared with just 19% last month. The share of those choosing “2% or above” rose to 36% from 23% in July.
YEN INTERVENTION INEFFECTIVE
Japan and the U.S. launched a rare joint yen-buying intervention last month after it hit 40-year lows, seeking to stem a selloff in the currency and Japanese government bonds that risked broader spillovers, including further upward pressure on U.S. Treasury yields.
More than two-thirds of respondents, or 18 of 26, said action was either “not very effective” or “not effective at all,” with many saying it only delayed, rather than resolved, underlying issues.
The survey also found that 89% of economists, or 25 of 28, said Prime Minister Sanae Takaichi’s fiscal policy would contribute to yen weakness as concerns linger over how planned tax cuts on food items and investment spending would be funded.
“The Takaichi administration’s fiscal policy … raises inflation expectations and intensifies concerns the BOJ is falling behind the curve,” said Kyohei Morita, chief economist at Nomura Securities.
“In particular, if a consumption tax cut is implemented amid market concerns there is little backing for its funding, the yen’s depreciation could easily accelerate, including through selling of Japanese government bonds by overseas investors.”
(For other stories from the Reuters global economic poll)
(Reporting by Satoshi Sugiyama; Polling by Pulkit Khanna, Anant Chandak and Susobhan Sarkar; Editing by Vivek Mishra, Ross Finley and Hugh Lawson)
Comments