The Bank of Japan (BOJ) is widely expected to keep its key policy rate unchanged through to March, according to a Reuters poll of 67 economists. All but a few — 97% — anticipate no rate change at the January and March meetings, signalling a cautious approach following the central bank’s decision to raise rates to a 30-year high of 0.75% in December.
The BOJ’s last rate increase came after an 11-month pause, reinforcing trader expectations that further tightening will be gradual. Looking ahead, most economists foresee the next rate hike occurring mid-year, with July identified as the most likely month. Of those who indicated timing, 43% chose July, while smaller shares pointed to June, April or later in 2024.
By the end of September, 76% of respondents expect the policy rate to reach 1% or higher, up from 69% in a previous poll. This shift reflects a growing consensus that the BOJ will continue tightening, but at a measured pace aligned with their economic assessments in the Outlook Report and the impacts of the December hike.
Market participants should note that the expected peak for the BOJ’s policy rate has risen as well. The median forecast for the terminal rate now stands at 1.5%, compared to 1.0% in a similar poll taken nearly a year ago. However, there remains a broad range of views, with terminal rate expectations spanning from 1% to 2%. Most economists predict only one rate increase in 2026, though about a third expect two.
The central bank’s policy path may be influenced by political factors. Prime Minister Sanae Takaichi, preparing for a snap general election, has emphasised her preference for maintaining low interest rates and has unsettled markets by signalling some influence over monetary policy. Despite this, economists believe the BOJ is unlikely to accelerate tightening unless significant yen weakness drives imported inflation.
Forex traders should therefore prepare for a cautious, gradual tightening cycle by the BOJ, with key rate moves likely concentrated mid-2024 onwards. The interplay between political developments, inflation dynamics, and currency movements will be crucial factors to monitor in anticipating the Bank of Japan’s future policy decisions.
Original Source: Eamonn Sheridan of investinglive.com
