Goldman Sachs has brought forward its forecast for a Bank of Japan rate hike to September and expects the terminal policy rate to rise to 1.75%. The report is based on assumptions as of September 2026.
Goldman Sachs said the Bank of Japan could raise rates at its next meeting as early as September, ahead of the previous market consensus. It also expects the terminal policy rate to rise to 1.75%.
The outlook is based on a change in the Bank of Japan’s policy reaction function and a situation in which long-term inflation expectations rise to around 2%. Developments in the yen exchange rate are also cited as an important factor in the forecast.
Ahead of the September meeting, the focus could extend beyond Tokyo CPI and wage data to whether the dollar-yen rate can hold at the ¥160 level. The view is that a further weakening of the yen would alter expectations that the Bank of Japan will maintain its current policy stance and strengthen expectations of a rate hike.
The September decision will be affected by the availability of new data. August Tokyo CPI and wage trends, the Tankan survey, and indicators of inflation expectations such as the BEI are expected to be important. The policy path could also change from October onward depending on the data.
The increase in the terminal policy rate reflects the approach of medium- to long-term inflation expectations to 2%. Communication by the Bank of Japan and the government, as well as exchange-rate developments, will be key.