The Bank of Japan is expected to raise its key interest rate this month, signaling a decisive shift toward combating inflation rather than shielding the economy from downside risks. A Reuters poll indicates borrowing costs will climb to 1.25 percent by year-end.

BOJ Governor Kazuo Ueda effectively confirmed a June hike last week, marking a clear pivot in the central bank's narrative. With the yen hovering near the critical 160-per-dollar threshold, analysts warn that delaying policy tightening could trigger further currency depreciation and potential government intervention.

In a survey of 70 economists conducted between June 2 and 8, 94 percent forecast the policy rate would rise to 1.0 percent by the end of June. This consensus strengthens from May’s 65 percent prediction. Furthermore, nearly all respondents expect the rate to reach at least 1.0 percent by September.

Atsushi Takeda, chief economist at Itochu Research Institute, noted that underlying inflation is approaching the 2 percent target. He argued that without scaling back substantial monetary easing, supply shortages are likely to accelerate price growth.

Looking ahead, more than three-quarters of respondents anticipate a second hike to 1.25 percent in the fourth quarter. Two-thirds now project the rate hitting 1.50 percent in the second quarter of next year, an acceleration from previous third-quarter forecasts.

Sosuke Nakamura, an economist at Citigroup, emphasized that the BOJ increasingly views the risks of postponing a hike as outweighing the benefits. The central bank will conclude its two-day policy meeting on June 16, just before the Federal Reserve announces its own decision.

While markets expect the Fed to hold rates steady, investors are pricing in a potential December hike following robust US inflation data and strong labor market performance. Domestically, despite revised GDP data showing lost momentum in the January-March quarter, economists remain confident in Japan’s economic resilience. They expect core consumer inflation to stabilize around 2.4 percent in fiscal 2026.