Following the Bank of Japan's decision this week to raise interest rates to their highest level since 1995, market expectations for additional monetary policy tightening have intensified rapidly. A Bloomberg survey reveals that a vast majority of economists anticipate the BOJ will implement another rate hike within the year, with some analysts predicting an accelerated pace of tightening.
According to a Bloomberg report on Thursday, a survey of 44 economists shows approximately 90% of respondents expect the central bank to further increase the benchmark rate from 1% before its December meeting. Among them, 52% believe the most likely timing for the hike is December, 36% point to October, and nearly a quarter see a potential move as early as September.
The BOJ announced a rate hike on Tuesday, its first since December of last year, citing risks that underlying inflation could exceed its 2% target. This move, combined with signals from Federal Reserve officials for potential hikes this year and the European Central Bank's preemptive action last week, has brought the contours of a global tightening cycle among major central banks into sharper focus, further strengthening market expectations for a faster pace from the BOJ.
Pace of Tightening May Accelerate, Terminal Rate Expectations Rise
The survey results indicate that market projections for the terminal rate in this BOJ tightening cycle have risen significantly compared to earlier estimates. The median forecast among the surveyed economists now places the peak policy rate for this cycle at 1.75%, up from 1.5% in a survey conducted earlier this month. The median expectation for the end of 2027 is 1.5%, implying an additional hike in 2026 followed by another in 2027.
Marcel Thieliant, Head of Asia Pacific at Capital Economics, stated in the survey response, "Given the BOJ now sees downside risks to economic activity as having diminished and upside risks to inflation as having increased, we expect policymakers to accelerate the pace of the tightening cycle. We now expect the bank to hike again in October and implement three additional hikes in 2027." This path would bring the BOJ's overnight call rate to 2% by the end of 2027, placing it at the higher end of the survey's forecast range.
Deputy Governor Leads Press Conference, No Clear Signal on Acceleration
Notably, the post-meeting press conference was led by Deputy Governor Shinichi Uchida, as Governor Kazuo Ueda was hospitalized last week. Several economists surveyed pointed out that Uchida did not send a clear signal regarding accelerating the pace of rate hikes during the briefing.
Chotaro Morita, Chief Strategist at All Nippon Asset Management, commented, "Each policy meeting decision may carry more independent significance, rather than simply following a preset normalization path. The BOJ will also face greater pressure when communicating its decisions, needing to explain in detail its assessment of economic and price developments."
Expectations for June Hike Were Built Earlier, Communication Earns Market Approval
The formation of expectations for this hike was not sudden. At the April meeting, three board members voted for a hike but were outvoted, resulting in a split decision. Subsequently, several members who had previously voted to hold rates steady publicly expressed support for tightening, which steadily built expectations for a June hike.
The survey shows that two-thirds of respondents rated the BOJ's communication ahead of this decision as "good" or "very good," with only 5% rating it poorly. This reflects overall market approval of the central bank's policy transparency.
On the currency front, the yen held near 160 per dollar following Tuesday's meeting, with traders remaining alert to the potential for further foreign exchange intervention. Previously, after Fed officials signaled potential rate hikes this year, the yen fell to its weakest level against the dollar since July 2024, raising intervention risks. Naka Matsuzawa, Chief Strategist at Nomura Securities, noted, "As the U.S. and Europe begin pivoting toward rate hikes, the BOJ will likely have little choice but to accelerate its own pace of tightening more than previously expected to avoid falling further behind the curve."
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