A recent survey reveals that market expectations for a Bank of Japan interest rate hike next week have cooled significantly due to Middle East geopolitical conflicts, with most economists now projecting the central bank's next rate increase will be delayed until June. Among 51 economists surveyed, approximately 80% anticipate the Bank of Japan will maintain its benchmark interest rate at 0.75% following the conclusion of its two-day monetary policy meeting on April 28. The remaining respondents still expect a rate hike next week, but this proportion has notably decreased from the 37% recorded in a survey conducted in early March.
Military actions involving the US and Israel against Iran have driven up oil and gas prices, intensifying concerns that the Japanese economy, which is highly dependent on resource imports, will face significant cost pressures. Consequently, expectations for a near-term rate hike by the Bank of Japan have largely dissipated. Market consensus has now shifted, with the anticipated timing for the next rate hike pushed back to June; 57% of the surveyed economists forecast an increase at that time.
This week, informed sources indicated that the Bank of Japan is leaning towards keeping the benchmark rate unchanged on April 28. Bank of Japan Governor Kazuo Ueda stated last week that the April decision would be particularly challenging, as the central bank must balance upside and downside risks to underlying inflation.
With the yen hovering near 160 against the US dollar, some analysts predict the Bank of Japan may employ hawkish language when announcing its decision to hold policy steady, aiming to support the yen's exchange rate. A majority of economists project that June could present a suitable window for the next rate increase.
Eiji Kitada, Chief Economist at Hamagin Research Institute, commented, "Given the absence of a clear resolution to the Middle East situation, the Bank of Japan may find it difficult to raise rates. The focus of this meeting will be on how the Bank signals potential near-term interest rate movements."
Approximately three-quarters of the economists believe upside risks to underlying inflation outweigh downside risks. Half of the respondents expect the Bank of Japan will be compelled to accelerate its pace of rate hikes, suggesting a rate increase next week cannot be entirely ruled out.
"There is still uncertainty surrounding this meeting," said Tomo Kinoshita, Global Market Strategist at Invesco Asset Management Japan Ltd. "If the situation with Iran is expected to bring greater inflationary pressure to Japan, the Bank of Japan could still potentially raise rates."
The median forecast for the Bank of Japan's policy rate by year-end has been revised upward to 1.25% from a previous estimate of 1%. Late Tuesday, the yen traded around 158.90 per US dollar, close to the 160 level, nearing the point at which authorities intervened in 2024 to support the currency.
Hiroshi Namioka, Chief Strategist at T&D Asset Management, stated, "The Bank of Japan's rate hike pace has been relatively slow. If no hike is implemented in April, the yen could potentially depreciate to around 163 yen per US dollar."
The Bank of Japan is scheduled to release its quarterly economic outlook report and policy statement next week. Market observers anticipate the central bank will raise its core inflation forecast for fiscal year 2026, which began this month, to 2.3% from 1.9%, excluding fresh food prices.
Governor Ueda provided advance signals ahead of the previous two rate hikes in January and December 2025. However, no such indications have been communicated this time.
Jin Kenzaki, Chief Japan Economist at Société Générale, noted, "We have postponed our forecast for the next rate hike from April to June. However, if the US and Iran fail to reach a peace agreement and the Strait of Hormuz remains closed by that time, the hike could be further delayed to the July meeting."
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