The probability of a Bank of Japan rate hike in September has surged to 57%. Most economists indicate that the policy rate could be raised to around 1.5% by next spring. The survey was conducted among 58 people from 17 to 24 August.
Economists’ views on the pace of the Bank of Japan’s monetary tightening have rapidly turned more hawkish. In the latest survey, 57% of economists expect the policy rate to be raised by 0.25 percentage points from the current 1.00% to 1.25% in September. This represents a significant increase from their expectations in July.
Looking beyond next year, approximately 65% of the 54 respondents said the policy rate would rise to at least 1.50% by the end of March 2027 at the latest. The Bank of Japan raised rates to 1.00% this June, and respondents offered a range of forecasts for the terminal rate.
Goldman Sachs economists brought forward their forecast for the timing of the next rate hike, saying rates would be raised again between January and September next year. They also raised their forecast for the neutral rate from 1.5% to 1.75%. Markets are closely focused on the Bank of Japan’s decision at its 18 September meeting, while questions have been raised about the durability of the intervention’s effects.
The new core CPI rose 2.3% year on year in July, exceeding the 1.8% increase in the conventional core CPI released by the government, strengthening the view that underlying inflation remains elevated. As the yen’s depreciation continues in the foreign-exchange market, views are also spreading that the intervention’s effects are limited.
Overall, the Bank of Japan is monitoring the progress of its rate-hike cycle and the market response amid a situation shaped by inflation trends, yen weakness and political factors. The outcome of the 18 September Monetary Policy Meeting is highly likely to influence the subsequent path of interest rates and the direction of foreign exchange.