Economists Project BOJ Rate Hike by Year-End Amid Yen Weakness

A recent poll of economists suggests a high probability of the Bank of Japan (BOJ) implementing another interest rate increase by the close of the year. The survey, conducted between July 13 and 21, gathered insights from 87 economists regarding the central bank's monetary policy outlook.

The findings reveal that a significant majority, 83 out of 87 economists, anticipate no change to interest rates during the current quarter. However, looking further ahead, 75 of the 87 surveyed economists expect the BOJ to enact a further 25 basis point rate hike, bringing the policy rate to 1.25% by the end of December. Among those forecasting a hike, 27 out of 51 pinpoint December as the likely timing, while 18 out of 51 foresee the move occurring in October. These potential shifts in monetary policy are closely watched by retail forex and CFD traders, as interest rate differentials between major currencies like the JPY and USD can significantly influence currency pair movements.

Economists Assess BOJ Pace and Yen Valuation

• A substantial majority, 23 of 32 economists, indicated that the BOJ is not proceeding too slowly with its rate adjustments.
• Furthermore, 23 of 29 economists expressed the view that the USD/JPY exchange rate around 160 is excessively weak when compared to Japan's underlying economic fundamentals.

The sentiment reflected in the poll largely aligns with current market pricing, which also suggests approximately 25 basis points of rate hikes by the BOJ before year-end. The exact timing of the next move, whether in October or December, appears to be a close call, with geopolitical developments potentially influencing the decision.

Adding to the complexity for the BOJ is the persistent weakness of the Japanese yen. A depreciating currency can exacerbate inflationary pressures by making imports more expensive, potentially compelling the central bank to take action sooner to stabilize prices and the currency's value.

Overall, the survey highlights a prevailing expectation for further monetary tightening from the Bank of Japan in the coming months, driven by both economic conditions and the impact of a weaker yen.