BOJ Rate Hike to 1.25% Expected as Japan's Economy Heats Up

Japan's central bank is expected to raise interest rates for the third time this year at its upcoming meeting, according to CNBC's latest poll. The consensus among respondents points to a rate hike to 1.25%, marking a quicker pace than the six-month rhythm followed since March 2024.

The last increase was in June, and with headline inflation reaching 1.9% in July, the BOJ may feel pressure to tighten its policy further. The Iran war has pushed up energy costs, contributing to this rise.

Despite some dissenting views, a majority of respondents expect another rate hike, citing Japan's recent economic data as supporting evidence for a faster tightening path. However, Carlos Casanova at UBP thinks the BOJ holds fire this time, but still sees it trailing the curve and ultimately envisions a pair of quarter-point moves spaced six months apart.

A stronger yen is also expected to result from the rate hike, with about 61% of survey participants predicting the currency will hover between 155 and 160 over the next month. A more hawkish BOJ should help keep the currency from slipping beyond 160, but getting it to strengthen past 150 'will not be easy', according to Homin Lee at Lombard Odier.