BOJ Rate Hike to 1% by June in Focus as Inflation and Weak Yen Pressure Mount

The Bank of Japan (BOJ) is increasingly expected to raise its key interest rate to 1% by the end of June, according to a recent Reuters poll of economists. The shift in forecasts reflects growing concerns about rising inflation, yen depreciation, and the broader impact of Japan’s fiscal policy under Prime Minister Sanae Takaichi.

In December, the BOJ lifted its benchmark interest rate to 0.75%, marking a 30-year high and signaling readiness for further monetary tightening. While all 76 economists surveyed between February 10 and 18 anticipate the central bank will keep rates unchanged at its March meeting, expectations for the next rate hike have moved forward significantly. Previously projected for September, the consensus now points to mid-year action.

Among 74 economists, 58% expect the BOJ policy rate to reach 1% by the end of June. Of the 44 respondents who specified timing, 36% selected June, 20% said April, and 34% predicted July. Analysts cite persistent inflation risks, expansionary fiscal measures, and the weak yen as key drivers behind the hawkish outlook. Some experts suggest the BOJ could act as early as April if inflationary pressures intensify.

The Japanese yen, which fell close to 160 per U.S. dollar in January, recently rebounded nearly 3%, its strongest weekly gain since November 2024. Currency market intervention remains a possibility, with two-thirds of surveyed economists expecting authorities to step in if the yen approaches the 160 level again.

Fiscal concerns are also mounting. More than half of respondents expressed worry that a proposed two-year suspension of the consumption tax on food and beverages could strain Japan’s public finances. Meanwhile, wage growth expectations remain steady, with economists forecasting a median increase of 5.2% in upcoming negotiations, slightly above previous projections.

As inflation trends, wage growth, and currency movements evolve, investors and policymakers will closely watch the BOJ’s next move in shaping Japan’s monetary policy outlook.