BoJ to raise rates again by December — Reuters poll

Lallalit Srijandorn FXStreet

According to a majority of economists in a Reuters poll, the Bank of Japan (BoJ) will raise its interest rate again by the end of December and possibly as soon as October, keeping further rate rises in view through next year.

86% of economists expect the BoJ to raise its key interest rate to 1.25% by the end of the fourth quarter (Q4), up slightly from 79% in a June survey.

70% of economists anticipate the BoJ to hike rates to at least 1.50% in Q2 of 2027, while 51% of respondents see 1.50% as the terminal rate.

58% of economists see the impact of Japanese Government Bonds (JGB) yield increase on Japan's debt-financing costs in the next 2-3 years 'very' or 'somewhat' concerning.

79% of economists said the USD/JPY pair around the 160 level is too weak relative to Japan's economic fundamentals.

Market reaction

At the time of writing, the USD/JPY pair is down 0.05% on the day at 163.07.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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