BOJ Set to Hike Rates Sharply to Counter Inflation Fears

The Bank of Japan is set to raise interest rates more quickly than expected, according to a Reuters poll. A majority of economists, 57%, expect the BOJ to increase its key rate from 1% to 1.25% in September.

This move would be a sharp turnaround from July's poll, when just 5% expected a hike this quarter. The central bank raised rates to a three-decade high of 1% in June and economists now expect the policy rate to reach at least 1.5% by end-March next year.

Nearly two-thirds of analysts, 35 of 54, foresee the rate reaching at least 1.75% by end-Q3 2027, with half of those surveyed saying 1.75% would be the terminal rate. The yen's weakness and inflation concerns are driving expectations for a more aggressive monetary policy.

The BOJ's move is also influenced by the US-Israeli war with Iran, which has heightened global uncertainty and pushed up inflation expectations. A rare joint yen-buying intervention between Japan and the US last month was seen as ineffective by over two-thirds of respondents, who said it only delayed underlying issues rather than resolving them.