BOJ Rate Hike Expectations Surge to 40% Ahead of October Meeting

Despite recent stock market turbulence, expectations for another interest rate hike by the Bank of Japan (BOJ) have strengthened. A Bloomberg survey of 52 economists shows that forecasts for a rate increase at the October Monetary Policy Meeting have surged to 40%, up from 36% in the previous survey conducted immediately after the June rate hike.

This represents a 4 percentage-point increase and indicates that market participants are increasingly eyeing additional tightening. The dominant view is now shifting towards an acceleration in the pace of rate increases, with October becoming a prime target for the next hike. Notably, all survey respondents expect the policy interest rate to be held steady at the upcoming meeting on July 30-31.

The landscape has changed since August 2024, when anxiety over the U.S. economic outlook led to speculation that the BOJ's normalization path would temporarily retreat amid a global chain of stock market declines. This time, however, economic indicators pointing to a virtuous cycle of domestic wages and prices are accumulating, with the underlying inflation rate tracking in the 2% range.