Economists polled in early June overwhelmingly expect the Bank of Japan to begin raising its key policy rate this month and to increase it again in the fourth quarter, bringing the rate to 1.25% by year-end. The results, drawn from a survey conducted June 2-8, reflect a marked shift in monetary policy expectations as the central bank appears to prioritize inflation risks over downside economic concerns.
Respondents were nearly unanimous on an immediate move. In the poll, 66 of 70 economists - or 94% - forecast the policy rate would reach 1.0% by the end of June, a sharp rise from the 65% who held that view in a May survey. Nearly all participants also expected the policy rate to be at least 1.0% by the close of September; only one of 69 respondents dissented.
Officials' recent communications helped firm expectations for a June increase. The central bank governor's public remarks last week signaled a clear change in emphasis toward combating inflation, effectively setting the stage for a near-term tightening and increasing the likelihood of a succession of rate rises.
Analysts point to currency dynamics as a complementary pressure on policy timing. With the yen trading close to the roughly 160-per-dollar level that market participants view as sensitive enough to prompt official intervention, forecasters warn that any hesitancy to tighten policy could exert further downward pressure on the currency and complicate the BOJs calculus.
Economists in the poll also anticipated additional tightening beyond June. More than three-quarters of respondents - 53 of 67 - predicted the BOJ would lift the policy rate to 1.25% in the fourth quarter. Looking further ahead, two-thirds of economists now expect the policy rate to reach 1.50% in the second quarter of next year, a timeline that was moved forward from expectations in May that had pointed to the third quarter.
Several economists cited underlying factors supporting a more assertive stance. One noted that underlying inflation was nearing the central banks 2% target and that an output gap consistent with supply shortages could drive inflation higher unless the large degree of monetary accommodation was scaled back.
Another economist observed that the combination of the yens recent depreciation and the broader trend of rising global interest rates increases the risks associated with postponing a domestic rate increase, making the case for more prompt action stronger.
The BOJ is scheduled to wrap up a two-day policy meeting on June 16, just ahead of the Federal Reserves decision. While markets currently expect the Fed to hold rates steady, stronger-than-expected inflation prints and a resilient labour market have pushed some investor bets toward the possibility of a Fed hike by the end of December. Those global pressures form part of the backdrop to the BOJs deliberations.
On the domestic front, revised gross domestic product data released on Monday showed that Japans economy slowed in the January-March quarter compared with the prior three months. Despite that loss of momentum, economists surveyed anticipate the wider economy will hold up in the months ahead. They judged that the fallout from the Iran war is unlikely to materially dent private consumption or corporate investment, a view that reinforces arguments in favour of continued monetary policy normalisation.
On macro forecasts, the poll recorded no change from May in economists projections for annual average GDP growth, with estimates at 0.6% for fiscal 2026 and 0.9% for fiscal 2027. Core consumer inflation forecasts likewise remained steady at 2.4% for fiscal 2026 and 2.2% for fiscal 2027.
Implications
The poll shows a consensus that the BOJ is shifting toward tightening to address inflation risks, with potential implications for currency markets, domestic borrowing costs and financial conditions more broadly. The timing of policy moves and the proximity of the BOJs decision to other central bank meetings mean global developments will continue to factor into the outlook.