Get ready for a financial rollercoaster! The Bank of Japan (BOJ) is set to take bold steps, and the implications are massive.
In a recent poll by Reuters, economists predict the BOJ will hike its key interest rate to 1% by the end of June, a move that's sooner than previously forecast. This decision comes amidst rising inflation concerns and a weakening yen.
The poll, conducted after Prime Minister Sanae Takaichi's landslide victory, reveals a shift in the consensus view for the next rate hike from end-September to end-June.
But here's where it gets controversial... Some economists believe the BOJ might even raise rates as early as April!
In December, the BOJ already raised rates to a 30-year high of 0.75%, signaling its commitment to further hikes. Many global central banks are nearing the end of their rate-cutting cycles, adding to the pressure on the BOJ.
Markets are watching closely to see if Takaichi will continue advocating for low interest rates. In the February poll, all 76 economists agreed the BOJ would hold rates steady in March, but 58% expect a 1% rate by June, with June and April being the top picks for the next hike.
Marcel Thieliant, head of Asia-Pacific at Capital Economics, believes the BOJ's hawkish mood could lead to an April rate hike, though he considers June more likely. Kento Minami of Daiwa Securities expects a relatively brisk pace of further increases, considering the inflation risks from fiscal policy and yen depreciation.
The yen, which slid close to 160 yen per U.S. dollar in January, gained nearly 3% last week, its largest rise since November 2024. This gain was partly attributed to speculation that Takaichi's victory would strengthen her position against opposition parties' calls for steeper tax cuts and broader outlays.
However, analysts remain cautious about the fiscal implications of Takaichi's agenda. In the poll, over 57% of economists expressed concern that a proposed two-year suspension of the consumption tax on food and beverages could strain public finances.
Atsushi Takeda, chief economist at Itochu Research Institute, warns that fully ending the consumption tax reduction after two years would leave fiscal risks.
To counter further yen weakness, two-thirds of respondents anticipate authorities intervening again in the currency market, with 40% believing the 160 yen per dollar mark could trigger this intervention.
In terms of wage negotiations, around 52% of respondents expect pay increases this year to not exceed last year's 5.25%. The median expectation among 29 economists is a 5.2% growth in wages, up from 5.0% in December and 4.9% in November.
This story is part of the Reuters global economic poll series.
Reporting and polling details are provided at the end of the article, along with a link to the Thomson Reuters Trust Principles.
