BOJ Expected to Raise Rates to 1.0% in June, Followed by Another Hike in Q4: Reuters Poll

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BOJ Expected to Raise Rates to 1.0% in June, Followed by Another Hike in Q4: Reuters Poll

The Bank of Japan (BOJ) is widely expected to raise its benchmark interest rate to 1.0% at its June policy meeting, with another increase projected for the fourth quarter of 2026, according to a Reuters poll of economists. The survey, conducted over the past week, indicates a strong consensus among market participants that the central bank will continue its gradual tightening cycle as inflation remains above target and wage growth supports consumer spending.

Consensus on June Hike

Of the 34 economists surveyed by Reuters, 28 forecast a rate increase at the June 15-16 meeting, bringing the policy rate from its current 0.75% to 1.0%. The remaining six respondents expect the move to occur later in the third quarter. This marks a significant shift from earlier expectations, which had anticipated a slower pace of normalization following the BOJ’s historic exit from negative rates in March 2024.

Further Tightening Expected in Q4

The poll also revealed that a majority of economists anticipate another rate hike in the October-December period, potentially pushing the rate to 1.25% by year-end. The projected trajectory reflects the BOJ’s confidence that Japan’s economy can withstand higher borrowing costs, supported by robust corporate earnings and a tight labor market. Core consumer inflation, excluding fresh food, is expected to remain around 2.5% through 2026, well above the BOJ’s 2% target.

Market and Economic Implications

A rate increase to 1.0% would represent the highest policy rate in Japan since 2008. The move is expected to strengthen the yen, which has traded near multi-decade lows against the U.S. dollar, and could impact Japanese government bond yields. For households, higher mortgage rates may dampen housing demand, while savers could benefit from improved deposit rates. Exporters, however, may face headwinds from a stronger yen.

The BOJ has emphasized that its policy decisions remain data-dependent, with Governor Kazuo Ueda reiterating that the pace of normalization will be gradual. The central bank is also monitoring global economic risks, including trade tensions and financial market volatility, which could alter its trajectory.

Conclusion

The Reuters poll underscores a clear market expectation for continued monetary tightening by the BOJ through 2026, with a June hike to 1.0% seen as highly probable. While the path forward appears steady, economists caution that external shocks or a sharper-than-expected economic slowdown could delay further moves. The BOJ’s next policy decision in June will be closely watched for signals on the pace and ultimate endpoint of its normalization cycle.

FAQs

Q1: Why is the BOJ raising interest rates?
The BOJ is raising rates to combat persistent inflation above its 2% target and to normalize monetary policy after years of ultra-low rates. Strong wage growth and a tight labor market have given policymakers confidence that the economy can handle higher borrowing costs.

Q2: How will a rate hike affect the yen?
A rate hike typically strengthens the yen by making yen-denominated assets more attractive to investors. A stronger yen could lower import costs for Japan but may hurt export competitiveness.

Q3: What is the current BOJ policy rate?
The BOJ’s policy rate is currently 0.75%, following a hike from 0.50% in March 2026. The expected June hike would bring it to 1.0%.

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