By Satoshi Sugiyama
TOKYO, Jan 15 (Reuters) – The Bank of Japan will likely wait until July before raising its key interest rate again, economists say, with more than 75% of them expecting it to climb to 1% or higher by September from the current three-decade high of just 0.75%.
While the BOJ is expected to eventually lift rates a few more times to reach a median expected terminal rate of 1.5%, it remains well out of step with its global peers, which for the most part have spent the past few years cutting borrowing costs.
Known as a fiscal and monetary dove, Japan’s new Prime Minister Sanae Takaichi rattled markets immediately after taking office in October. She said she had control over the direction of monetary policy and stressed her preference for low interest rates.
Takaichi plans to dissolve parliament next week and call a snap general election, the secretary general of her ruling party said on Wednesday. Some of Takaichi’s advisers have repeatedly warned against the danger of additional interest rate increases.
Most analysts, who were polled between January 6-13 before that announcement, said the BOJ would prefer not to act in haste in order to assess the impact on the economy of its quarter-point hike in December unless the yen’s depreciation adds cost pressure through imported goods.
The BOJ waited 11 months between the December rate rise and the previous one in January 2025.
All but two of 67 economists in the latest monthly Reuters poll said the BOJ will keep its key rate steady at its January and March meetings.
But 76% of respondents, 50 of 66, said it would reach at least 1% by the end of September, up from 69% in last month’s poll. That includes two analysts who expected the rate to reach as high as 1.25%.
“Given that the policy rate has risen to its highest level in 30 years…there’s a need to more carefully assess the effects of tightening, and also considering the advantage of being able to present views on economic and price conditions when the Outlook Report is released, the July meeting appears somewhat more likely,” said Yusuke Matsuo, senior market economist at Mizuho Securities.
Of 37 economists who specified a month when the BOJ will next hike rates, July was the top choice, with 43%. Another 27% said June and 8% each said April, October and “January 2027 or later.”
“It will likely take around six months to confirm, with data, how the latest hike is affecting the real economy,” said Junki Iwahashi, senior economist at Sumitomo Mitsui Trust Bank, who also expects the next hike to be in the summer.
The median prediction for rates by year-end was 1.00%, unchanged from last month’s survey. But 24% of economists forecast it to climb to 1.25% by then.
In the survey, 60% of economists who answered an extra question, 21 of 35, predicted the BOJ would raise interest rates once this year, while another 31% said twice.
A slight majority, 14 of 27, said there was “neither high nor low” risk of the BOJ falling “behind the curve” in taming inflation. Another 19% said “low risk” and 15% said “high.”
The terminal rate is forecast at 1.5%, the median forecast from 30 economists showed, a jump from 1% in a poll taken nearly a year ago. Forecasts ranged between 1% and 2%.
(For other stories from the Reuters global economic poll)
(Reporting by Satoshi Sugiyama; Polling by Devayani Sathyan and Veronica Khongwir in Bengaluru; Editing by Ross Finley and Jamie Freed)
