Bank of Japan expected to raise rates this week, CNBC poll shows

The Bank of Japan is expected to raise its benchmark interest rate this week by 25 basis points, according to a survey of economists by CNBC.

An increase would put the BOJ’s key rate at 0.5%, its highest level since 2008.

An overwhelming majority of 18 of 19 economists agreed on the prospects for a rate hike, with most pointing to a recent change in tone from the BOJ leadership as driving their expectations. The survey was conducted from January 15 to 20.

Public comments by Governor Kazuo Ueda and a speech Deputy Governor Ryozo Himino’s remarks to business leaders last week have indicated the BOJ’s willingness to raise rates.

Ueda said on Jan. 16 that the central bank would raise rates if “improvements in the economy and prices continue,” according to a Reuters report.

Himino, meanwhile, said the bank would discuss raising rates at the next meeting, adding that “it would not be normal” for real interest rates to remain negative once Japan had overcome deflationary factors.

The tone indicates that the headwinds that had prevented a rate hike last month were easing, according to several economists surveyed by CNBC.

However, they also noted that a key risk to this forecast was the uncertainty arising from Donald Trump’s presidency and its potential impact on Japan’s financial markets and economy.

Uichiro Nozaki, an economist at Nomura Securities, described Himino’s speech as an “important catalyst” for his call to raise rates.

“From (Himino and Ueda’s) comments, we judge that the BOJ is more confident. In terms of wage increases, Himino said the main scenario is that wage increases as high as those in 2024 are realized in 2025.”

Takesh Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities, backed his call for a rate hike, noting that recent comments from BOJ leaders indicated a “more positive tone on two key points, namely the prospects for increases.” wages in fiscal year 2025 and uncertainty about the next US administration.”

Another common factor cited by economists in favor of a rate hike was the persistent weakness of the yen, which before Himino’s Jan. 14 speech had fallen to six-month lows of 158.37.

“The yen has weakened significantly since the BOJ decided to skip a rate hike in December,” said Stefan Angrick, associate director at Moody’s Analytics.

“This, combined with a series of higher-than-expected inflation figures for consumer, producer and import prices, increases the likelihood of monetary policy action in January.”

Rising expectations of a rate hike this week have supported the Japanese currency, which has strengthened 1.24% in the seven days to Tuesday. He yen It strengthened between July and September, before weakening beyond 158 late last year.

LSEG data indicates an almost 88% probability of an increase at the next meeting.

Some economic indicators have been pointing in the right direction. Core inflation in Japan, which excludes fresh food prices, has met or exceeded the BOJ’s 2% target for 32 consecutive months, and 2024 experienced the largest increase in shunto salary negotiations in 33 years.

Himino, in his speech, said the bank should pay close attention to salary increases in fiscal year 2025, which runs from April 2025 to March 2026.

“Every company faces unique challenges, and raising wages would by no means be a simple matter. But I expect to see strong wage increases in fiscal 2025 like we did in fiscal 2024,” he said.

However, data on household spending has not shown significant improvement. Household spending has decreased every month year-on-year since March 2023, except for two marginal increases in April and July 2024.

A weak spending figure could mean weak demand, which will affect the Bank of Japan’s “virtuous circle.”