BOJ seen hiking by quarter point to new three-decade high: CNBC survey

The Bank of Japan is likely to raise rates to 1.25% at the end of its two-day meeting on Friday amid inflationary pressures, according to a CNBC survey. 

A hike would signal an acceleration of the tightening cycle, faster than the six-month interval the Bank has been following since it started policy normalization in March 2024. The BOJ last raised rates in June. 

Around 89% of respondents said they expect the BOJ to hike by 25 basis points, citing higher inflation, higher wages, and pressure from the U.S. government. 

Japan’s headline inflation rate for July hit its highest this year, at 1.9%, due to increased energy costs from the Iran war. In the same month, real wages rose 2.4%, rising for the seventh month in a row. 

Treasury Secretary Scott Bessent told BOJ Governor Kazuo Ueda to take “decisive market and monetary steps” at the G20 finance ministers and central bank governors meeting earlier this month.

Bessent later posted on social media that they discussed the importance of anchoring inflation expectations and avoiding excess volatility in exchange rates. 

“The Trump administration has effectively checked any potential move by a Takaichi administration to block the Bank of Japan from raising interest rates,” said Takahide Kiuchi, executive economist at Nomura Research Institute and former BOJ policy board member. “Consequently, the Bank of Japan has gained a free hand to proceed with rate hikes.”

BOJ board members have also made hawkish comments, leaving open the possibility of accelerated rate hikes.

The CNBC survey was conducted Sept. 9-14 among 18 economists and analysts. 

The outliers:

• Jesper Koll, expert director at Monex Group, said he sees the BOJ hiking by 50 basis points in a “one and done” move. 

• Carlos Casanova, senior economist for Asia at UBP, expects the BOJ to stand pat for now, though he thinks it is behind the curve and eventually expects two 25 basis point hikes every six months. “Data doesn’t yet support a regime shift,” he said, so there is “insufficient visibility to justify a faster pace of rate hikes. Iran tensions and oil prices remain the main risk.” 

Asked which BOJ board members are most likely to dissent on a hike, around a third of respondents named Toichiro Asada and Ayano Sato. Both are seen as reflationists and were appointed by Prime Minister Sanae Takaichi earlier this year. 

As for the yen, around 61% of respondents said they expect it to trade between 155 and 160 in the next month. 

Homin Lee, senior macro strategist at Lombard Odier, said the BOJ’s hawkish shift will help keep the yen stronger than 160. But appreciating it past 150 “will not be easy” because government and business officials will push back against “inappropriately” fast currency appreciation, he said. 

— CNBC’s Lim Hui Jie and Sri Jegarajah contributed to this report.