Japan’s Interest Rates Could Hit A Three-Decade High. Nearly 9 In 10 Economists Expect Another Hike.
The Bank of Japan is widely expected to raise interest rates again this week, a move that would take borrowing costs to their highest level in more than three decades as the central bank responds to persistent inflation and stronger wage growth.
Nearly 89% of economists and analysts in a CNBC survey expect the BOJ to raise its policy rate by 25 basis points to 1.25% when its two-day meeting concludes Friday. The survey of 18 respondents was conducted from Sept. 9 through Sept. 14.
A move to 1.25% would mark another step in the BOJ’s exit from years of ultra-low and negative interest rates. It would also come only three months after the central bank’s last increase, shortening the roughly six-month intervals between previous rate hikes since Japan began normalizing monetary policy in March 2024.
The BOJ raised its short-term policy rate to about 1% in June, continuing a tightening cycle that began when the central bank ended its negative interest-rate policy in March 2024.
Inflation and wages are among the main factors economists are watching ahead of this week’s decision.
Japan’s nationwide consumer price index rose 1.9% from a year earlier in July, with higher energy costs contributing to the increase, official data from the Statistics Bureaushowed. Inflation has remained close to the BOJ’s 2% target even as the factors driving price increases have shifted.
Wage growth has also strengthened, with Japan’s Ministry of Health, Labour and Welfare reporting that inflation-adjusted real wages increased 2.4% in July from a year earlier, extending a run of gains in workers’ purchasing power.
The combination of wages and prices is particularly important for the BOJ, which has spent years looking for evidence that higher pay can support consumption and generate more durable inflation rather than price increases driven primarily by imported costs.
The central bank has repeatedly said it will continue raising its policy rate if economic activity and prices develop broadly in line with its outlook.
An increase this week would quicken the BOJ’s recent pace of tightening after the central bank moved gradually following the end of negative interest rates in March 2024, giving officials time to assess wage growth, inflation and the impact of higher borrowing costs on households and businesses.
The policy debate has also taken place against heightened attention from Washington to Japan’s monetary and foreign-exchange policies.
U.S. Treasury Secretary Scott Bessent met BOJ Governor Kazuo Ueda during the G20 finance ministers and central bank governors gathering in North Carolina earlier this month. Bessent called for “sound formulation and communication of monetary policy” and discussed steps aimed at limiting excessive currency volatility, the Treasury said following the meeting.
The U.S. and Japan have an established framework for consultations over currency policy. In a joint statement on foreign exchange policy, the U.S. Treasury and Japan’s Ministry of Finance reaffirmed that exchange rates should be determined by markets and that monetary policy should be directed toward domestic economic objectives rather than targeting exchange rates for competitive purposes.
Prime Minister Sanae Takaichi has generally favored accommodative monetary policy alongside fiscal support, creating another consideration as the BOJ continues raising rates.
About a third of respondents to CNBC’s survey identified board members Toichiro Asada and Ayano Sato as the most likely to oppose a rate increase. Both were appointed earlier this year by the Takaichi government.
The yen will be another focus after Friday’s decision, although economists differ over how much additional tightening would affect the currency. About 61% of respondents to the CNBC survey expect the yen to trade between 155 and 160 against the dollar over the next month.
