The Bank of Japan is poised to accelerate its monetary tightening cycle, with a majority of economists forecasting a 25-basis-point rate hike to 1.25% at its September meeting, according to a Reuters poll conducted between August 17 and 24.
Fifty-seven percent of respondents, or 33 out of 58 economists, expect the central bank to raise its policy rate next month, a sharp increase from just 5% in a July survey. The move would follow the BOJ's June decision to lift rates to a three-decade high of 1%, marking a shift from its long-standing ultra-loose policy stance.
Nearly two-thirds of analysts, or 35 out of 54, anticipate the policy rate will reach at least 1.5% by the end of March 2025. Around 60% of respondents project the rate will climb to at least 1.75% by the end of the third quarter of 2027, with half of those surveyed identifying 1.75% as the terminal rate. An additional 36% of participants expect the terminal rate to be 2% or higher, up from 23% in the previous month's poll.
The anticipated acceleration in tightening reflects mounting concerns over persistent yen depreciation and inflationary pressures linked to geopolitical tensions, including the U.S.-Israeli conflict with Iran. U.S. Treasury Secretary Scott Bessent has also signaled support for tighter Japanese monetary policy, according to respondents.
Japan and the U.S. recently conducted a rare joint intervention to prop up the yen after it slumped to 40-year lows. However, 89% of economists surveyed said Prime Minister Sanae Takaichi's fiscal policies, including proposed tax cuts and increased spending, would likely exacerbate yen weakness. More than two-thirds of respondents described the joint intervention as either ineffective or only marginally effective in addressing underlying pressures.
JPMorgan Securities' Chief Japan Economist Ayako Fujita noted that markets have already priced in a September hike, warning that delaying the move could destabilize financial conditions. Nomura Securities' Chief Economist Kyohei Morita added that the government's fiscal stance risks entrenching inflation expectations and undermining the BOJ's policy credibility, particularly if funding for tax cuts remains unclear.
The survey results underscore a growing consensus that the BOJ will need to maintain a more aggressive tightening trajectory to curb inflation and stabilize the yen, despite the potential economic headwinds of higher borrowing costs.
