A survey by CNBC indicates that the Bank of Japan, or BOJ, is likely to raise its policy interest rate to 1.25% at this week's meeting amid inflationary pressure. About 89% of respondents expect the BOJ to raise rates by 0.25% given rising inflation and wages, as well as pressure from the U.S. government for Japan to continue its rate-hike cycle. This increase would reflect that the BOJ is accelerating its monetary tightening cycle, compared with the roughly six-month gaps between moves since it first began raising rates in March 2024, which ended more than eight years of negative interest rate policy dating back to 2016. The BOJ last raised rates this past June. The survey was conducted from September 9 to 14, gathering the views of 18 economists and analysts. Meanwhile, the Japanese government yesterday approved a plan to cut the consumption tax on food products, reducing the rate for food to 1% from the current 8%, effective in April 2027 for a period of two years. The government will also introduce additional support measures for low- and middle-income earners, effectively lowering their tax burden to 0%. The government confirmed it will not issue bonds to cover the budget shortfall and expects the measure to cost it about 5 trillion yen in lost revenue per year. Investors are also watching the impact of tighter monetary policy on the yen and the economy. The CNBC survey showed that 61% of respondents expect the yen to trade in a range of 155 to 160 yen per dollar next month. Homin Lee, a senior macro strategist at Lombard Odier, believes the BOJ's tightening will help the yen strengthen beyond 160 yen per dollar, though gains beyond 150 yen per dollar may be difficult. Carlos Casanova, a senior Asia economist at UBP, expects the BOJ to hold rates for now and eventually raise them by 0.25% every six months. Jesper Koll, an economy expert at Monex Group, expects the BOJ could raise rates by as much as 0.50% in a single move before pausing for a while.
Monex Group, Inc.BOJ expected to hike policy rate to 1.25%, pushing JGB 10Y yields higher.
