Over half of economists expect BOJ to hike rates further this year – Reuters poll

By Thomson Reuters Mar 22, 2024 | 12:08 AM

By Satoshi Sugiyama

TOKYO (Reuters) – More than a half of economists expect the Bank of Japan will raise interest rates further this year, a Reuters poll showed on Friday, possibly taking them to as high as 0.25%.

The BOJ on Tuesday ended eight years of negative interest rates and other remnants of its unorthodox policy, hiking rates for the first time in 17 years to around zero in a historic shift away from decades of massive monetary stimulus.

But the survey reflected conviction among market players that the central bank will go slow on additional increases to support a fragile economic recovery.

Of 35 economists polled, 54% expected another increase in short-term interest rates by year-end, according to the poll conducted on March 19-21 after the BOJ wrapped up its policy-setting meeting.

While none of economists predicted the next rate hike will come through June, 14%, or five out of 37 economists who provided their quarterly forecasts, anticipated borrowing costs will rise to either 0.20% or 0.25% in the July-September quarter.

Mari Iwashita, Daiwa Securities’ chief market economist, said she was leaning toward either September or October, factoring in the possibility of an upward swing in the inflation outlook from July onwards at the earliest.

“The government’s declaration of an end to deflation could be made before the ruling Liberal Democratic Party leadership contest” in September, Iwashita said.

The fourth quarter was the top pick, with 15 of 35, or 43% of economists expecting the next move then, and their range fell between 0.15% and 0.25%.

The analysts’ median forecast rate by end-2024 was 0.20%.

Separately, five economists saw the next hike taking place next year instead of this year. Two picked the first quarter, while another chose the second quarter. One selected the third quarter.

Three-fourth of economists in the Reuters poll said the chance of the central bank increasing rates faster than their expectations was the bigger risk for their predictions.

Still, BOJ Governor Kazuo Ueda repeatedly stressed that accommodative conditions will be maintained, noting distance for inflation expectations to reach 2%.

Half of economists predicted the BOJ would start reducing its balance sheet from the second half of next year or after, the poll showed.

(Reporting by Satoshi Sugiyama; Polling and analysis by Devayani Sathyan, Susobhan Sarkar and Anant Chandak; Editing by Kim Coghill)