Bank of Japan (BOJ) Breaks 6-Month Pattern?...89% of Experts "Expect Rate Hike"

▲ Japanese Yen (JPY)/AI Generated Image

The Bank of Japan (BOJ) is increasingly likely to accelerate its tightening pace by raising the policy rate to 1.25% at its upcoming meeting.

According to CNBC on September 16 (local time), in a survey conducted from September 9-14 targeting 18 economists and analysts, approximately 89% expected the BOJ to raise interest rates by 0.25 percentage points. If the prediction holds true, the policy rate will increase to 1.25%. The BOJ has been raising rates at approximately six-month intervals since beginning monetary policy normalization in March 2024, but another hike following June would accelerate the tightening pace. A Reuters survey also showed a predominant forecast for a September rate hike.

Key variables driving the interest rate hike forecast are prices and wages. Japan's consumer price inflation rate in July recorded its highest this year at 1.9%, due to rising energy costs. Real wages increased by 2.4% in the same month, marking the seventh consecutive month of increase. CNBC survey respondents cited high prices and wage increases, in addition to pressure from the U.S. government, as factors raising the likelihood of a rate hike.

U.S. Treasury Secretary Scott Bessent, at a meeting of G20 finance ministers and central bank governors earlier this month, urged BOJ Governor Kazuo Ueda to take “decisive market and monetary policy action.” Bessent later stated that they discussed stabilizing inflation expectations and avoiding excessive exchange rate volatility. Takahide Kiuchi, Senior Economist at Nomura Research Institute and former BOJ policy board member, commented, “The Trump administration has virtually blocked the possibility of the Takaichi government preventing a BOJ rate hike,” adding, “Consequently, the BOJ has gained the discretion to push for a rate hike.” The fact that Bessent urged the BOJ to respond with monetary policy was also confirmed in separate reports.

There were also dissenting opinions. Jesper Koll, Expert Director at Monex Group, anticipated that the BOJ would raise rates by 0.5 percentage points in one go and then pause further increases. Carlos Casanova, Chief Economist for Asia at UBP, expected rates to be kept on hold this time. He then projected two further hikes of 0.25 percentage points each, every six months, but noted, “There isn't enough data yet to suggest a change in the policy regime,” citing Iran tensions and oil prices as major risks. Approximately one-third of the survey respondents identified Toichiro Asada and Ayano Sato as policy board members likely to oppose a rate hike.

The yen outlook was concentrated in the 155-160 yen range. Approximately 61% of respondents expected the yen to trade within this range over the next month. Homin Lee, Senior Macro Strategist at Lombard Odier, believed that the BOJ's hawkish pivot could keep the yen stronger than 160 per dollar. However, he predicted it would be difficult for the yen to strengthen beyond 150 due to the potential for government and corporate backlash against an excessively rapid appreciation.

[Key Article Summary]

-Approximately 89% of CNBC survey respondents expected the Bank of Japan to raise rates by 0.25 percentage points to 1.25% at its upcoming meeting.

-July consumer price inflation of 1.9%, real wage growth of 2.4%, and the U.S. government's call for monetary policy response were cited as factors raising the rate hike outlook.

-Approximately 61% of respondents predicted the yen would trade in the 155-160 yen per dollar range over the next month.

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