Economist: The Bank of Japan has the highest probability of raising interest rates in July, and yen depreciation may force preemptive action

BlockBeats News, January 16 — A recent survey of 52 economists by Bloomberg shows that exchange rate trends are becoming a key variable influencing the Bank of Japan’s policy decisions. Amid the yen’s continued weakness and rising inflation pressures, market expectations for an early rate hike by the Bank of Japan are increasing.

The survey indicates that all respondents unanimously expect the Bank of Japan to keep the benchmark interest rate at 0.75% during the policy meeting on January 22–23. Regarding the timing of the next rate hike, July is the most mainstream expectation, supported by 48% of economists; 17% believe it may occur in April or June.

Economists generally expect the pace of rate hikes by the Bank of Japan to remain at once every six months. However, if the yen continues to depreciate and inflation expectations rise, the central bank may be forced to accelerate its actions. Sumitomo Mitsui Trust Bank economist Junki Iwabashi pointed out that if the USD/JPY falls below the 160 level, the timetable for rate hikes could be significantly advanced.

Currently, the yen is hovering around 158.5, close to the multi-decade lows reached in July 2024. In the survey, three-quarters of respondents believe that the risk of the yen’s weakness forcing the Bank of Japan to hike rates earlier is increasing.

Regarding the interest rate path, economists have raised their median forecast for the “terminal rate” in this rate hike cycle to 1.5%, the highest level since the survey began in late 2023. Additionally, most respondents believe that the key focus of next week’s meeting will be the Bank of Japan’s updated quarterly economic outlook report, which will for the first time incorporate the economic stimulus plan launched by Prime Minister Fumio Kishida’s government, potentially signaling the pace of future rate hikes.