Key facts
- The Bank of Japan is expected to raise its policy interest rate to 1.25% on September 18.
- A Reuters poll forecasts the BOJ's policy rate to reach 1.75% by the second quarter of 2027.
- Nearly all economists surveyed anticipate a rate hike on September 18, a significant increase from previous polls.
- U.S. pressure and coordinated yen-buying intervention are seen as factors enabling the BOJ's policy shift.
- Japan's budget requests for the upcoming fiscal year have reached 143.1 trillion yen, prompting concerns about fiscal discipline.
The Bank of Japan is poised to raise interest rates to 1.25% on September 18 and is projected to reach 1.75% by the second quarter of 2027, according to a Reuters poll. This accelerated timeline for tightening monetary policy is driven by persistent concerns over broadening price pressures and a weakening yen.
More than 80% of poll respondents indicated that joint U.S.-Japan yen-buying intervention and remarks by U.S. Treasury Secretary Scott Bessent have significantly or somewhat lowered political hurdles for rate hikes. Bessent expressed strong support for "decisive" monetary steps to combat yen volatility during a meeting with BOJ Governor Kazuo Ueda.
Economists noted that U.S. cooperation in intervention makes it difficult for the Japanese government to oppose Washington's wishes for BOJ rate hikes. The poll showed 97% of economists expect a rate hike on September 18, with over a third anticipating a further increase to 1.50% by year-end.
Beyond 2024, 89% of analysts expect the policy rate to reach at least 1.50% by end-March next year, and 62% see it reaching at least 1.75% by end-Q2 2027. The yen has strengthened to around 153.37 per dollar, near its strongest level since February, amid expectations of faster monetary tightening and capital repatriation.
Separately, Japan's budget requests for the next fiscal year total 143.1 trillion yen, raising concerns about fiscal discipline among nearly three-quarters of economists surveyed.