BOJ Hikes Interest Rates as US Pressure Mounts

The Bank of Japan (BOJ) is expected to raise interest rates to 1.25% on September 18, according to a Reuters poll of economists. The rate hike will be followed by another increase to 1.75% in the second quarter of 2027, three months earlier than previously predicted.

The survey showed that over 80% of respondents believed U.S.-Japan cooperation had lowered political hurdles for rate hikes. Treasury Secretary Scott Bessent's support for decisive monetary steps to combat yen weakness was seen as a significant factor in this shift.

Analysts noted that Japan's hesitation on policy tightening in the past, combined with faster build-up of inflation expectations, suggests the central bank might need to hike rates more to achieve the same outcome. The majority of economists polled expected the policy rate to reach at least 1.50% by end-March next year.

The yen has strengthened against the dollar, reaching its strongest level since February, amid early hints of capital repatriation and expectations of a faster pace of monetary tightening. Japan's budget requests for the next fiscal year have also raised concerns about the country's fiscal discipline.