A Reuters poll of 68 economists shows the Bank of Japan raising rates to 1.25% on September 18, then to 1.75% by the second quarter of 2027 — sooner than previously expected. Analysts say joint U.S.-Japan yen intervention and pressure from Treasury Secretary Scott Bessent have eased political resistance to tightening, while the yen strengthens toward its best level since February.
The Bank of Japan will raise its policy rate to 1.25% on September 18 and reach 1.75% in the second quarter of 2027, earlier than previously expected, according to a Reuters poll of 68 economists conducted September 1-8. All but two of 68 economists, or 97%, now expect the September 18 rate hike, up from 57% in the previous survey.
Yen strengthens as pressure mounts
More than 80% of respondents said the joint U.S.-Japan yen-buying intervention to stem the currency's slide to 40-year lows, together with remarks from Treasury Secretary Scott Bessent, had lowered political hurdles for BOJ rate hikes. Bessent voiced support for decisive monetary steps in a meeting with BOJ Governor Kazuo Ueda at a G20 gathering this month and urged the bank to anchor inflation expectations. According to Reuters, Mizuho Research Institute economist Yusuke Koshiyama said Japan's government "will likely have little choice but to effectively endorse Bessent's stance".
The yen traded around 153.37 per dollar on Wednesday, near its strongest level since February, as early hints of capital repatriation and expectations of faster BOJ tightening combined with U.S. pressure to lift the currency.
Terminal rate views shift higher
Beyond September, 24 of 66 economists now expect a follow-up hike to 1.50% in October or December, roughly double August's share. Meanwhile, 89% of analysts, 57 of 64, expect the policy rate to reach at least 1.50% by end-March next year, up from 65% last month, and 62% see it reaching at least 1.75% by end-Q2 2027 — three months earlier than August's poll projected.
Half of 54 respondents who answered an extra question named 1.75% as the terminal rate, unchanged from last month, while the share choosing 2.00% or higher rose to 40% from 36% in August.
Record budget stokes fiscal concern
Japan's budget requests for the next fiscal year totalled 143.1 trillion yen ($931.2 billion), swelling to pandemic-era levels as Prime Minister Sanae Takaichi's expansionary fiscal agenda drove government borrowing costs to three-decade highs. Almost three-quarters of economists, 28 of 38, said the total heightens market concerns about Japan's fiscal discipline. Sumitomo Mitsui Trust Asset Management economist Kei Fujimoto said the request size is on a par with fiscal 2021 during the pandemic and unusually large for a peacetime budget.
Some analysts said those concerns could rise further once the final budget size and new government bond issuance become clearer toward year-end.
Source: Investing.com
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