The Bank of Japan is poised to raise its benchmark interest rate, with a Reuters poll revealing that nearly two-thirds of economists anticipate a move by the end of June. This potential shift comes as war-fueled inflation risks intensify, prompting markets to scrutinize the BOJ's upcoming April policy meeting.
Economists largely expect the BOJ to tighten policy this quarter, a sentiment reinforced by fears of escalating energy prices, renewed inflation, and a weakening yen, particularly following the recent conflict in the Middle East. The survey shows 65% of economists forecasting the policy rate to reach 1.00% by end-June. While some analysts suggest a hike could occur as early as April, others believe the BOJ will opt for more time to assess the economic landscape, pointing to a June move as more probable.
Beyond the immediate future, median forecasts suggest borrowing costs could rise to 1.25% in the fourth quarter. Japan's policy rate, currently at 0.75%, remains below the neutral rate, and with inflation hovering around 2%, the BOJ faces the risk of overheating the economy by maintaining deeply negative real borrowing costs.
Escalating global uncertainty, however, is testing this hawkish outlook. A significant portion of respondents to the poll believe the ongoing conflict will cumulatively increase Japan's core consumer price index by 0.2-0.4% over the next twelve months. While a recession is not anticipated, forecasts for annualised GDP growth in the second and third quarters have been revised downwards.