The Bank of Japan is set to increase its policy rate to 1.25% on Sept. 18, according to a Reuters poll of 68 economists conducted Sept. 1‑8. The poll also indicates the central bank plans a second hike to 1.75% in the second quarter of 2027, an acceleration from earlier expectations.
Poll details and market expectations
97% of respondents now expect the September move, up sharply from 57% in the previous poll. While a minority—24 of 66 economists—forecast an interim rise to 1.50% in October or December, that share is roughly double the August figure.
Beyond this year, 89% of analysts anticipate the policy rate will reach at least 1.50% by the end of March 2027, and 62% see it hitting 1.75% by the end of Q2 2027, three months earlier than predicted in August.
U.S. influence and yen‑buying intervention
More than 80% of those surveyed said a joint U.S.–Japan yen‑buying intervention and remarks by Treasury Secretary Scott Bessent have lowered political hurdles for rate hikes. Bessent, speaking at a G20 finance ministers meeting, urged decisive monetary steps to curb yen weakness and called for the BOJ to anchor inflation expectations.
Yusuke Koshiyama, senior Japan economist at Mizuho Research Institute, noted that the BOJ previously found it difficult to adjust monetary easing while the Japanese government maintained an accommodative fiscal stance. He added that with U.S. cooperation secured, the Japanese government will find it hard to oppose Washington’s wishes, effectively endorsing Bessent’s stance on rate hikes.
Implications for the yen and broader economy
Early signs of capital repatriation and expectations of a faster tightening pace are supporting the yen, which traded around 153.37 per dollar on Wednesday—its strongest level since February.
Kelvin Lam, senior economist at Pantheon Macroeconomics, warned that Japan’s historic hesitation over policy tightening means faster‑building inflation expectations could force the BOJ to hike rates more aggressively to achieve its price‑stability goals.
Fiscal backdrop
Japan’s budget requests for the next fiscal year total 143.1 trillion yen (about $931 billion), a level comparable to pandemic‑era spending. Prime Minister Sanae Takaichi’s expansionary fiscal agenda has pushed government borrowing costs to three‑decade highs.
Almost three‑quarters of economists (28 of 38) expressed concern that the size of the requests could strain market confidence in Japan’s fiscal discipline. Kei Fujimoto, senior economist at Sumitomo Mitsui Trust Asset Management, highlighted that the budget, while not including a supplementary package, matches the scale of fiscal 2021 and is large for a peacetime budget. He added that a planned consumption‑tax cut on food items could further heighten market worries about funding.
What’s next?
The BOJ’s upcoming decisions will be closely watched by investors, exporters, and households alike. A faster‑than‑expected tightening path could reinforce the yen, ease import‑price pressures, and shape the trajectory of Japan’s recovery.
Analysts will continue to monitor the interplay between monetary policy, fiscal spending, and international coordination as Japan navigates a delicate balance between growth and price stability.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
