Most economists responding to a mid-July poll anticipate the Bank of Japan will raise its policy rate again before the end of December, and some see an earlier move as soon as October. The consensus underscores the tightrope the BOJ faces: a prolonged low-rate environment could intensify inflationary pressure coming from a depreciated yen, while moving too quickly on rates could stoke concerns over rising debt-service costs and slow a delicate recovery.
The July 13-21 survey found that 95% of respondents - 83 out of 87 economists - expected the BOJ to leave policy unchanged for the current quarter. The central bank had already moved in June, raising its policy rate to 1%, the highest level in roughly three decades.
Looking ahead, 86% of those polled - 75 of 87 economists - forecast a further 25-basis-point increase to take the policy rate to 1.25% by the end of December. That proportion rose slightly from a June survey, where 79% had predicted another hike before year-end. Among the 51 economists who specified a month for the next move, 53% selected December, 35% picked October and 8% expected January or later.
"The pace of rate hikes, which until now has been roughly once every six months, may accelerate somewhat due to the need to counter inflationary and yen-selling pressure," said Kazutaka Maeda, senior economist at Meiji Yasuda Research Institute, who expects the next increase in October. The remark reflects a common view in the poll that price pressures are broadening and the weak yen is nudging the BOJ toward incremental tightening at roughly six-month intervals.
The yen recently weakened to 163.24 per dollar in U.S. trading on Tuesday, its weakest level since December 1986, as higher oil prices and rising U.S. Treasury yields supported the dollar. That currency move has been cited in the poll as an inflationary risk, with several respondents linking the exchange rate to higher import costs.
Japan's core inflation has remained below the BOJ's 2% target over the last four months, but the poll's median projection sees core inflation rising into the mid-2% range by the fourth quarter, driven in part by higher oil prices after the Iran conflict. Atsushi Takeda, chief economist at Itochu Research Institute, who expects December for the next hike, said an earlier additional move could be used to limit inflationary effects from the weak yen. He also warned that a quicker tightening could increase expectations that corporate borrowing costs will rise further, which may dampen firms' investment appetite and risk derailing the recovery.
Beyond the end of this year, 70% of economists surveyed expected the policy rate to reach at least 1.50% by the end of the second quarter of 2027. A slender majority considered 1.50% to be the BOJ's terminal rate, with individual forecasts spanning from 1.25% up to 2.00%.
On the pace of policy change, almost three-quarters of a subgroup of respondents - 23 of 32 economists - said the BOJ was not moving too slowly with its rate increases. Those respondents cited underlying inflation that has not stabilised at 2% and the ongoing downside risks posed by the conflict in the Middle East.
Market and fiscal implications of higher rates were a recurrent concern in the poll. Japan's relatively low interest rates versus other advanced economies and worries about the nation's public finances have been persistent downward pressures on the yen. Nearly 80% of economists surveyed in one subset - 23 of 29 - judged a dollar/yen exchange rate around the 160 level to be too weak relative to Japan's economic fundamentals.
Concerns about government debt servicing rose as Japanese government bond yields climbed to multi-decade highs. The poll found that 58% of economists were "very" or "somewhat" concerned about debt-servicing costs over the next two to three years as yields have increased.
A separate episode briefly amplified market jitters: a draft government economic blueprint that said it was "very important for monetary policy to be guided appropriately to achieve a stronger economy" triggered a selloff in Japanese government bonds amid speculation the government could pressure the BOJ to keep rates low. The document was later revised to restate the central bank's independence, and Prime Minister Sanae Takaichi denied any link between the draft and market moves. Takaichi has also signalled caution regarding further rate rises.
Implications for markets and firms - The poll paints a picture where exchange-rate dynamics, oil-driven inflationary pressure, and higher global yields are combining to push the BOJ toward gradual further tightening. For corporates, the risk is that faster-than-expected rate increases lift borrowing costs and suppress investment. For sovereign debt markets, rising yields raise the cost of servicing government debt and have already prompted portfolio selling in government bonds.