- 66 of 70 economists (~94%) forecast the BOJ to raise its policy rate to 1% in June (previously ~65%)
- 68 of 69 economists (~99%) expect policy rate to reach at least 1% by the end of September
- 53 of 67 economists (~79%) expect the BOJ to raise its policy rate to 1.25% in Q4 2026
Adding to the projections above, roughly two-thirds of economists also now expect the policy rate to reach 1.50% by Q2 next year. That brings forward the expectations of such a target, which was projected for Q3 next year in May.
As things stand, traders are pricing in ~87% odds of a rate hike next week already. So, it is very much a done deal. That especially given the many “leaks” we have seen in recent days. It has been the norm in recent times with regards to how the BOJ wants to manage its communication to markets.
While June is a done deal, further steps will be even tougher to navigate for the central bank.
As the US-Iran conflict rages on, it continues to decimate the Japanese economy and that is a major concern for the BOJ as well. The deteriorating economic outlook will make it tougher for policymakers to push for more rate hikes. And adding to that is the more perilous fiscal picture as well, with the Japanese government needing to cover more gaps.
For now, the continued pressure on the yen currency is surely also a consideration. And given the circumstances, the balance of risks suggest that they should act now or risk nearly missing the boat once again later.
