The Bank of Japan is reportedly considering raising interest rates as early as September, with the focus on whether it will maintain the 1% interest-rate level reached after its June rate hike. The backdrop includes mounting inflationary pressure, continued yen weakness and moves by Japan and the US to intervene by buying yen.
In a recently conducted survey, 57% of economists forecast that the Bank of Japan will raise interest rates next month, a significant increase from the outlook for a rate hike in the third quarter at the time of a July 2026 survey. Following its rate hike to 1% in June, some expect the Bank of Japan to raise rates again in September.
The outlook is underpinned by inflationary pressure stemming from the Middle East conflict and continued strong selling pressure on the yen. Although Japan and the US carried out an unusual coordinated intervention last month, the yen has not fully recovered.
To address yen weakness, Japan and the US jointly intervened to buy yen for the first time in 15 years. The intervention was aimed at curbing heavy selling of the yen and Japanese government bonds.
More than two-thirds of the economists surveyed said they viewed the intervention as merely postponing, rather than fundamentally resolving, the problem, while 89% believed Prime Minister Takaichi Sanae (高市早苗)'s fiscal policy would contribute to yen weakness.