Source Credit : Portfolio Prints
The Bank of Japan is expected to raise its benchmark interest rate to 1.0% in June, according to a Reuters poll in which nearly two-thirds of economists said policymakers are likely to continue normalising monetary policy amid mounting inflation risks linked to the war in Iran.
The central bank kept its policy rate unchanged at 0.75% last month as officials assessed the economic fallout from the conflict. However, three of the BOJ’s nine board members dissented and pushed for an immediate increase to 1.0%, highlighting growing concern over inflationary pressures driven by surging energy prices.
BOJ board member Kazuyuki Masu, who voted to maintain rates in April, said on Thursday that the central bank should raise interest rates “as soon as possible” if there are no clear signs of an economic slowdown, suggesting he could support a hike at next month’s meeting.
In the May 7–14 Reuters survey, 40 out of 62 economists — roughly 65% — forecast that the BOJ would lift its policy rate to 1.0% by the end of June, broadly unchanged from expectations in April. All but one respondent anticipated a rate increase by the end of September.
Median forecasts in the poll showed the BOJ raising rates further to 1.25% in the fourth quarter of this year and to 1.50% in the third quarter of next year, matching projections from last month’s survey.
“Given that the economic, price and wage conditions necessary for a rate hike remain largely intact, we see the June meeting — roughly six months after the December 2025 hike — as the most likely timing for the next move,” said Yusuke Matsuo.
The BOJ has also faced increasing pressure after leaving rates unchanged in April while Japanese authorities repeatedly intervened in currency markets to support the yen after it weakened beyond the 160-per-dollar level.
Many analysts argue that foreign exchange interventions — including the nearly 10 trillion yen ($63.35 billion) reportedly spent in recent weeks to slow the yen’s decline — are unlikely to have a lasting effect without tighter monetary policy.
Kyohei Morita said the BOJ may also feel compelled to raise rates in June to address rising inflation risks caused by yen depreciation, which has increased import costs and weighed on the broader Japanese economy.
Several economists cautioned, however, that policymakers may choose to delay tightening if uncertainty surrounding the war intensifies, particularly as Japan faces weakening consumer demand and the possibility of supply-chain disruptions affecting industrial production.
Prime Minister Sanae Takaichi, a longtime supporter of loose monetary policy, has previously expressed reservations about aggressive BOJ tightening.
Unlike many major central banks in the United States and Europe, Japan’s benchmark rate of 0.75% remains below the so-called neutral rate that neither stimulates nor restrains economic activity. With inflation hovering around 2%, the BOJ risks further weakening the yen and overheating the economy by maintaining deeply negative real borrowing costs.
In the Reuters poll, nearly three-quarters of respondents — 28 out of 39 economists who answered an additional question — said persistent inflation represented a greater threat to Japan’s economy over the next 12 months than a potential slowdown in demand.
“Authorities are attempting to stabilise the yen by signalling their willingness to intervene, but the impact is likely to remain limited given negative real interest rates and the risk that elevated crude oil prices could further deteriorate Japan’s trade balance,” said Hiroshi Namioka.
