The possibility of the Bank of Japan bringing forward its next rate hike to around September is increasing, while guidance points to the policy rate being raised to 1.75% by spring 2027 and ultimately reaching 2.5%.
Markets are focused on September, October or December as possible timing for the next rate hike. The author expects more than simply a brought-forward hike, forecasting that the policy rate will be raised to 1.75% by spring 2027. The pace of rate hikes is expected to take the policy rate to 1.5% in December and 1.75% in March 2027. The author also points out that the final policy rate could exceed 2.5%, depending on price trends.
Statements made before and after the July policy meeting, together with the forward guidance in the Outlook Report, suggest that the Bank of Japan is bringing forward both the timing and pace of rate hikes. At a press conference following the policy meeting, Governor Ueda (植田) said, “We would like to have a thorough discussion at upcoming policy meetings,” increasing the likelihood of a September rate hike.
Since June, the Bank of Japan is said to have shifted toward a policy of avoiding the risk that the rate of underlying inflation will exceed 2%, while emphasizing through its forward guidance that monetary policy has entered a different phase. As a result, the potential bringing forward of rate hikes may extend beyond the next hike, prompting revisions to forecasts for the pace of future hikes and the level of the final policy rate.