BOJ will raise rates again this year, say two-thirds of economists: Reuters poll

[April 19, 2024]  By Satoshi Sugiyama

TOKYO (Reuters) - The Bank of Japan will raise interest rates again in 2024, according to two-thirds of economists polled by Reuters, but there was no clear consensus on when exactly the move would come.

Last month the central bank ended negative rates in a landmark shift away from its super-easy monetary policy, raising rates for the first time in 17 years to a 0.0-0.1% range.

The prevailing view among traders that the BOJ will refrain from aggressive hikes in the near-term so as to support a fragile economic recovery, which has contributed to the yen's slide against the U.S. dollar, was backed up by the poll results.

None of the economists polled April 10-17 predicted the next rate hike would come before the end of June, but just over a third of them, or 21 of 61, anticipated borrowing costs would rise to either 0.20% or 0.25% in the July-September quarter.

Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance, said the BOJ will be inclined to raise rates in July as consumers' price expectations increase.

"Along with a foreseeable 5%-plus wage hike in large companies, the BOJ will have more confidence for the achievement of its price target," Takamatsu said.

The BOJ targets an inflation rate of 2% but core inflation, which excludes fresh food items, was last reported at 2.6% in March and is forecast to be above target for at least a year, giving the central bank room to hike.

Just under one-third of economists, or 17 of 55, forecast the BOJ will raise rates to either 0.20% or 0.25% in the October-December quarter, the survey showed.

Five of the economists who expected a 0.25% rate in the third quarter - ING Financial Markets, JP Morgan, Meiji Yasuda Research Institute, Fukoku Mutual Life Insurance and T&D Asset Management - also foresaw the policy rate being lifted to 0.50% in the three months to December.

The Japanese national flag waves at the Bank of Japan building in Tokyo, Japan March 18, 2024. REUTERS/Kim Kyung-Hoon/File Photo

Median forecasts put the upper end of the target range for the overnight call rate, currently 0.10%, at 0.25% in the fourth quarter and staying there until late 2025 by which time it would be lifted to 0.50%.

Of a smaller sample of 36 economists who provided a specific forecast for which month the BOJ would next hike rates in, October was the top pick with 36%, followed by "2025 or later" with 31%, and 19% for July.

"The BOJ is likely to be able to confirm a further increase in wages and their transfer to service prices over the summer and autumn, increasing the likelihood of stable 2% price increases being achieved," said Moe Nakahama, an economist at Itochu Economic Research Institute.

Receding expectations of a near-term U.S. interest rate cut have pushed the yen to a 34-year low - over 154 per dollar on Tuesday - keeping markets on alert for possible intervention by Japan to prop up the currency.

Nearly all economists, or 91%, said Japanese authorities will step in at some level to stop the yen from weakening further.

Asked at which level, 76% or 16 of 21 said they expected action if the yen slumped to 155 against the dollar. Two chose 156, two chose 158, and one said 157.

(Reporting by Satoshi Sugiyama; Polling by Anant Chandak, Susobhan Sarkar and Devayani Sathyan; Editing by Hugh Lawson)

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