According to a Reuters poll, most economists expect the Bank of Japan to raise interest rates to 1.50% in December, following hikes in June and September, continuing the relatively rapid quarterly pace of rate increases in this tightening cycle — at the start of this cycle, the BOJ raised rates only once a year.
Yen weakness and Middle East tensions have pushed up energy and import costs, intensifying Japan's inflationary pressures. The number of respondents expecting at least two more rate hikes, reaching 2.0% by mid-next year, has increased.
The yen has faced heavy selling pressure for most of this year, triggering intervention by Japanese authorities and the U.S. Treasury Department. The yen's recent relative stabilization also supports a December rate hike.
Last week, BOJ board member Junko Koeda said that given significant upside inflation risks, the central bank should not be overly cautious about raising rates — the current rate is already at the highest level in 31 years.
In the survey conducted from October 13 to 19, 54 out of 78 economists (nearly 70%) expected the BOJ to raise the policy rate to 1.5% this quarter, nearly double the proportion from the previous survey. Among the 54 respondents who specified a hike month, about 80% chose December, while only 2% selected the BOJ's next two-day policy meeting ending on October 30.
"Given that both the U.S. and Europe may raise rates before year-end, if the BOJ delays action until the new year, yen selling could accelerate," said Kazutaka Maeda, senior economist at Meiji Yasuda Research Institute.
Other Reuters polls show the BOJ is expected to hold steady this month, while the Federal Reserve and European Central Bank are expected to raise rates in December.
"The economy is not overheated to the extent that consecutive rate hikes are needed, and price trends remain within the BOJ's expected range," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Sources said many BOJ officials prefer to assess more data to judge the impact of previous rate hikes on financial conditions.
Rates expected to reach 2% or higher
Looking ahead to next year, 39 out of 65 analysts (60%) expect the policy rate to reach 1.75% by the end of June next year, with the median proportion unchanged from the September survey. Among the 41 respondents who answered additional questions, nearly half believe 1.75% will be the terminal rate. However, the proportion expecting rates to reach 2.00% or higher rose to 51%, up from 40% in September and 36% in August.
In September, two board members appointed by Prime Minister Sanae Takaichi who support loose fiscal policy opposed the decision to raise rates to 1.25%. Traders viewed this dissenting vote as a signal that the BOJ's rate hike plan could continue to face resistance from the Takaichi government, and the yen briefly weakened.
Nearly three-quarters of respondents (23 out of 32) said that if another dissenting vote occurs at the policy board's next rate hike, it could pressure the yen — the yen is currently only about 4% above its low of around 164 per dollar in 2026.
"If the dissenting vote comes especially from board members appointed by the Takaichi government, it could be interpreted as the government trying to suppress rate hikes, exacerbating market concerns that future policy tightening may fall behind the curve," said Kei Fujimoto, senior economist at Sumitomo Mitsui Trust Asset Management.
Government bond issuance expected below 40 trillion yen
Japanese government bond yields have recently risen amid a global market sell-off, also driven by expectations of further rate hikes and concerns that Takaichi's large-scale spending and tax cut plans will worsen Japan's already strained fiscal position.
Takaichi said the government plans to keep new bond issuance for the fiscal 2027 budget at around 40 trillion yen ($251 billion). She reiterated on Monday that Tokyo will control debt issuance "appropriately."
Nearly two-thirds of the 23 economists surveyed (15) said new bond issuance will remain below 40 trillion yen.
"The government may be eager to increase government bond issuance as a funding source for growth investment," said Junya Takemoto, senior economist at Sumitomo Mitsui Banking Corporation. "However, as concerns about rising market interest rates intensify, the government may curb issuance through a comprehensive review of existing subsidy and fund budgets, ensuring that government bond issuance does not deviate significantly from historical levels."
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