BOJ will raise rates by the end of March, most analysts are leaning towards a hike in January – Reuters poll By Reuters

Satoshi Sugiyama

TOKYO (Reuters) – The Bank of Japan will raise interest rates again at one of two meetings this quarter to 0.50%, the vast majority of economists polled by Reuters said, with most leaning toward a January move.

The findings show the BOJ’s determination to take further steps towards a more normal monetary policy after years of radically accommodative stances, raising rates even as most of its global peers are still leaning toward cuts.

In the Jan. 8-15 poll released Thursday, all but two of the economists polled, 59 out of 61, said the BOJ would raise borrowing costs again, to 0.50% by the end of March.

Among the 32 who expect an increase this quarter and indicated in which month, slightly less than two-thirds, 20 of them said at the January 23-24 meeting, while the rest said in March.

Since policymakers kept rates on hold in December, analysts have been speculating about when the BOJ will raise rates again, given uncertainty over domestic wages and the economic plans of US President-elect Donald Trump, who returns to the White House on January 20.

BOJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino said earlier this week that the central bank would discuss whether to raise rates at its next meeting.

Strong domestic wage momentum and new price pressures bolster the case for a January hike, said Ayako Fujita, chief economist for Japan at JPMorgan Securities.

“If the inauguration of incoming US President Trump does not cause major market turmoil, delaying an interest rate hike until March is seen as excessively increasing the risk of market volatility,” Fujita said.

The BOJ said last week’s wage hike was spreading to companies of all sizes and sectors, signaling that the conditions for a near-term increase continue to fall into place.

After ending negative interest rates in March 2024, the central bank last raised its short-term policy target, to 0.25%, in July. He signaled a willingness to hike again if wages and prices move as forecast, and reinforced his belief that Japan will sustainably achieve 2% inflation.

All but one of the 22 economists who responded to an additional question said inflation in Japan was more likely to rise this year than they had predicted.

“There is more risk of inflation rising than falling, due to the risk of the yen weakening longer than expected due to factors such as the delay in US interest rate cuts,” said Harumi Taguchi, chief economist at S&P Global Market Intelligence.

Additionally, the median of the 23 economists who offered their opinion on the rate of wage increases at this year’s spring labor-management talks was 4.75%, up slightly from 4.70% in a poll last month. It was below last year’s 5.1%, but still higher than the previous year’s 3.58%.

With growth and inflation moving in line with the BOJ’s forecasts, and import prices believed to have turned positive year-on-year in December, the BOJ faces a situation that cannot overlook a weak yen, said Atsushi Takeda, chief economist in Itochu Research Institute.

Japan’s weak currency – which has pushed up import costs and inflation – was among the factors that led to the BOJ’s decision to start raising interest rates.

In the survey, two-thirds of respondents, or 14 out of 21, said the Japanese authorities would intervene in the currency market if the yen fell to 165 to the US dollar. Almost 20%, or four, said 160 yen.

(Other stories from the Reuters Global Long-term Economic Outlook survey package)