Golden Finance reports that a survey initiated by Reuters shows that among the economists surveyed, as many as 78% expect the Bank of Japan to raise interest rates to at least 0.75% by the end of the first quarter of 2026. This prediction reflects the general expectations of the market regarding the future monetary policy direction of the Bank of Japan.
Judging from the recent policy developments of the Bank of Japan, its monetary policy adjustments have drawn global attention. Last March, the Bank of Japan took a crucial step by officially withdrawing from the large-scale stimulus program it had been implementing for a long time. Subsequently, in July, the Bank of Japan raised the short-term interest rate to 0.25%. In January this year, it further increased the interest rate to 0.50%. This series of measures demonstrates the determination of the Bank of Japan to gradually tighten its monetary policy.
In this Reuters survey, 52% of economists expect the Bank of Japan to keep the interest rate unchanged at 0.50% before the end of this year. This proportion has increased compared with 48% in the survey in May. This indicates that although the market has certain expectations for the Bank of Japan to raise interest rates in the future, in the short term, most economists believe that the central bank will maintain stable interest rates.
The adjustment of the monetary policy of the Bank of Japan is closely related to the domestic economic situation. On the one hand, changes in domestic inflation data in Japan affect the decisions of the central bank. In January this year, Japan’s overall inflation rate rose to 4%. The core inflation rate, which excludes the prices of fresh food, increased from 3% in the previous month to 3.2%, exceeding economists’ expectations of 3.1% and reaching the highest level since June 2023. The “core-core” inflation rate, which excludes the prices of fresh food and energy, is closely watched by the Bank of Japan and has also risen slightly from 2.4% to 2.5%. The rise in inflation data has provided certain support for the Bank of Japan to raise interest rates.
On the other hand, the situation of economic growth is also an important factor considered by the Bank of Japan. Although there have been some positive signals in the Japanese economy recently, such as the announcement by Japan’s largest labor federation last week that its trade unions have won an average wage increase of 5.46% since April. This increase is higher than that of last year and is a positive sign for personal spending. However, the Japanese economy also faces many challenges. For instance, the economy shrank in the first quarter of this year, which makes the Bank of Japan need to carefully weigh when adjusting its monetary policy.
In addition, external factors also have an impact on the decisions of the Bank of Japan. US President Trump’s capricious tariff policy has cast a shadow over the global economic outlook. As an economy highly dependent on exports, Japan naturally cannot remain unscathed. The Bank of Japan has added references to the evolution of trade and other policy situations in its risk outlook list, clearly stating that although the economy has achieved a moderate recovery, uncertainty remains high. Risks include trade policies of various countries and their impact on overseas economies and prices.
As inflation in corporate goods and services slows down, consumer prices will also face lagging downward pressure, which to some extent eases the pressure on the Bank of Japan to raise interest rates. Data released on Wednesday showed that Japan’s domestic business Commodity price index (CGPI) rose by 3.2% year-on-year in May, the lowest level since September 2024. The forecast was 3.5%, and the previous value was revised to 4.1%. Japan’s domestic corporate commodity price index rose by 0.2% month-on-month in May, compared with the expected 0.2% and the previous value of 0.2%. CGPI measures the prices of goods and services that enterprises charge each other for. The data also shows that in May, the prices of steel products in Japan dropped by 4.8%, the prices of chemical products fell by 3.1%, and the prices of non-ferrous metal products decreased by 2.1%. The import price index denominated in Japanese yen dropped by 10.3% year-on-year in May after falling by 7.3% year-on-year in April, indicating that the rebound of the yen is depressing the cost of raw material imports.
For investors and market participants, it is crucial to closely monitor the monetary policy direction of the Bank of Japan. The changes in interest rates will directly affect multiple financial markets such as bonds, stocks and foreign exchange. If the Bank of Japan gradually raises interest rates in the future as most economists predict, the bond market may face downward pressure on prices, while the stock market may be somewhat impacted by the rising financing costs for enterprises. In the foreign exchange market, the exchange rate of the Japanese yen may fluctuate due to expectations of interest rate hikes.
In the future, the monetary policy decisions of the Bank of Japan will continue to seek a balance among inflation, economic growth and external risks. All market participants will continue to pay close attention to the policy meetings of the Bank of Japan and the release of related economic data to better grasp market trends.
Related Topics:
