Tokyo – A new Reuters poll released on August 24 shows a clear shift among economists: 57% now expect the Bank of Japan (BOJ) to raise its policy rate to 1.25% in September, up from just 5% who anticipated a move in the July poll. The poll reflects growing concern over inflation pressures tied to the U.S.-Israeli conflict with Iran and persistent yen‑selling pressure despite a rare joint Japan‑U.S. currency intervention last month.
Why the BOJ May Act So Quickly
Survey respondents cited two main drivers for a faster‑than‑expected tightening cycle. First, the war in the Middle East has pushed global commodity prices higher, raising the risk of imported inflation for Japan. Second, the yen’s slide to 40‑year lows has sparked worries about capital outflows and higher borrowing costs for the government.
Ayako Fujita, chief Japan economist at JPMorgan Securities, warned that “the market has already largely priced in a September rate hike; postponing such a hike would likely destabilize the market.” She added that an early policy adjustment has become unavoidable.
Projected Path for Future Rate Moves
Beyond September, the poll suggests a more aggressive trajectory. Nearly two‑thirds of analysts (35 of 54) expect the policy rate to reach at least 1.5% by the end of March 2027, three months earlier than predicted in July. About 60% foresee the rate climbing to at least 1.75% by the third quarter of 2027. When asked about the terminal rate, half of the 36 respondents who answered an extra question chose 1.75%, up from 19% a month earlier, while 36% now see a rate of 2% or higher.
Yen Intervention Seen as Largely Ineffective
Japan and the United States launched a coordinated yen‑buying operation in early August after the currency fell to a 40‑year low. More than two‑thirds of poll participants (18 of 26) rated the intervention as “not very effective” or “not effective at all,” noting that it merely delayed, rather than solved, the underlying weakness.
Economists also pointed to fiscal policy under Prime Minister Sanae Takaichi as a contributing factor. A large majority (89%) said the administration’s planned tax cuts on food items and increased investment spending could exacerbate yen depreciation if funding sources remain unclear.
Implications for Markets and Households
Higher rates are likely to raise borrowing costs for Japanese households and businesses, but they also aim to curb inflation and stabilize the currency. A stronger yen could help lower import prices, easing pressure on everyday consumers.
Investors will be watching closely for any signals from the BOJ in the coming weeks, especially after U.S. Treasury Secretary Scott Bessent’s recent comments that reinforced expectations of a September move.
What’s Next?
The BOJ raised rates to a three‑decade high of 1% in June, ending years of ultra‑low‑interest policy. If the September hike proceeds as the poll predicts, it will mark the fastest tightening pace in recent memory. Market participants should prepare for potential volatility in both the yen and Japanese government bond markets as the central bank navigates this new phase.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
