Most economists now expect BOJ to hike rates in September, Reuters poll finds

A majority of economists now expect the Bank of Japan to raise interest rates at its September meeting, a sharp reversal from just weeks ago, as persistent inflation pressures and a weak yen push the central bank toward a faster tightening cycle.

Economists See September Move as 'Unavoidable'

A Reuters poll published on August 26 showed that 57% of economists surveyed expect the BOJ to raise its key interest rate to 1.25% next month, up from just 5% who anticipated a move this quarter in a July poll. The central bank raised rates to a three-decade high of 1% in June.aol+1

"Since the market has already largely priced in a September rate hike, postponing such a hike would likely destabilize the market," said Ayako Fujita, chief Japan economist at JPMorgan Securities ↗ 0.08%. "An early policy adjustment has become unavoidable."aol

Reuters reported earlier this month that the BOJ was set to raise rates as soon as September and was considering hiking more aggressively than its current pace of roughly two increases per year, citing sources familiar with the central bank's thinking. Markets are pricing in roughly an 80% chance of a September hike.reuters+1

Inflation Data and Fiscal Pressures Mount

Fresh data reinforced the case for action. Japan's services producer price index rose 3.6% year-on-year in July, accelerating from a revised 3.4% gain in June, underscoring that a tight labor market is pushing firms to pass rising costs on to consumers.reuters

Meanwhile, Japan's Finance Ministry plans to earmark a record ¥36.6 trillion for debt-servicing costs in its fiscal 2027 budget request, according to the Nikkei, as rising interest rates swell the government's bond repayment burden. The Japan Times News Corp ↗ 0.29% reported the ministry is considering setting its assumed long-term bond interest rate at 3.8%, up from 3% in the current fiscal year.bloomingbit+2

Yen Weakness and Fiscal Policy Add Urgency

The poll also found that a rare joint yen-buying intervention by Japan and the United States last month has done little to resolve the currency's underlying weakness, with more than two-thirds of respondents calling it ineffective. Nearly 90% of economists said Prime Minister Sanae Takaichi's fiscal policy is contributing to yen depreciation, as markets question the funding behind planned tax cuts.aol

"The Takaichi administration's fiscal policy raises inflation expectations and intensifies concerns the BOJ is falling behind the curve," said Kyohei Morita, chief economist at Nomura Securities ↗ 1.54%. "If a consumption tax cut is implemented amid market concerns there is little backing for its funding, the yen's depreciation could easily accelerate."aol

Nearly two-thirds of analysts expect the policy rate to reach at least 1.5% by the end of March, three months earlier than previously forecast.aol