The Bank of Japan is expected to raise its policy rate to 1.25% at the conclusion of its two-day meeting on Friday, as persistent inflationary pressures build, according to a CNBC survey.
A rate increase would mark an acceleration in the BOJ’s tightening cycle, shortening the roughly six-month gap it has maintained between moves since beginning to normalize monetary policy in March 2024. The central bank most recently raised rates in June.
About 89% of survey respondents forecast a 25-basis-point hike, pointing to rising inflation, stronger wage growth and pressure from the U.S. government as key factors.
Japan’s headline inflation rate reached 1.9% in July, its highest level of the year, as energy costs increased amid the Iran war. Real wages also climbed 2.4% during the month, marking their seventh consecutive monthly gain.
Washington has repeatedly urged Japan to maintain its rate-hiking cycle, putting pressure on Prime Minister Sanae Takaichi, who favors looser monetary policy alongside expansionary fiscal measures.
Earlier this month, U.S. Treasury Secretary Scott Bessent told BOJ Governor Kazuo Ueda to take “decisive market and monetary steps” during a G20 meeting of finance ministers and central bank governors.
The United States is seeking a stronger yen because a weaker currency could prompt Japan to sell U.S. assets, including Treasury securities, to support the yen. Such selling could drive Treasury yields higher. In late July, the two countries carried out a historic joint intervention aimed at strengthening Japan’s currency.
“The Trump administration has effectively checked any potential move by a Takaichi administration to block the Bank of Japan from raising interest rates,” said Takahide Kiuchi, executive economist at Nomura Research Institute and a former BOJ policy board member. “Consequently, the Bank of Japan has gained a free hand to proceed with rate hikes.”
Recent hawkish remarks from BOJ policy board members have also fueled expectations that the central bank could accelerate the pace of future rate increases.
The CNBC survey was conducted from Sept. 9 to 14 and included 18 economists and analysts.
The outliers:
When asked which BOJ board members would be most likely to oppose a rate increase, roughly one-third of respondents identified Toichiro Asada and Ayano Sato. Both are viewed as reflationists and were appointed by Takaichi earlier this year.
On the currency outlook, about 61% of respondents said they expect the yen to trade between 155 and 160 over the next month.
Homin Lee, senior macro strategist at Lombard Odier, said the BOJ’s more hawkish stance should help keep the yen below 160. However, he cautioned that a move beyond 150 in the yen’s appreciation would “not be easy,” as government and business officials are likely to resist what they consider an “inappropriately” rapid strengthening of the currency.
— CNBC’s Lim Hui Jie and Sri Jegarajah contributed to this report.
