The Bank of Japan will raise its key interest rate by at least 25 basis points by year-end, a majority of economists said in a Reuters poll, although that could be swayed by global trade tensions and domestic political uncertainty.
The BOJ is seeking to push for slightly tighter monetary conditions, contrasting with its peers who are either tilting for or already proceeding with rate cuts. But the path is becoming increasingly uncertain, especially after the ruling coalition's bruising defeat in Sunday's parliamentary election.
An 83% majority of economists, 60 of 72, forecast no change to interest rates at the BOJ's next two policy meetings on July 30-31 and in September. Respondents in the July 11-22 survey provided their interest rate forecasts before Sunday's election.
However, 54%, 39 of 72, expect borrowing costs to increase to at least 0.75% from 0.50% next quarter, the survey showed, the reverse of a June poll in which only 48% expected a rate hike. There were fewer respondents in the previous poll.
"After 2026, there is a possibility a slowdown in prices will become apparent, and the impact of U.S. President Donald Trump's tariffs may also intensify, making autumn 2025...the last chance for an interest rate hike in the near term," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Economists in the July poll expect core consumer inflation, which excludes volatile fresh food but includes fuel costs, to reach 2.6% in the current fiscal year ending in March 2026 before slowing to 1.7% in fiscal 2026.
Interest rate futures are only pricing in about 14 basis points more of tightening from the BOJ by year-end.
While BOJ Governor Kazuo Ueda is likely to hold off raising rates to assess the economic impact from U.S. tariffs, there is a possibility of a rate hike this year if Japan strikes a deal to contain reciprocal tariffs to slightly above the current universal rate of 10%, said Kazutaka Maeda, economist at Meiji Yasuda Research Institute.
Trump on Tuesday announced a trade deal with Tokyo that he said would result in Japan investing $550 billion into the United States and a 15% tariff on imports from the Asian country.
(For other stories from the Reuters global economic poll)
