Analysts Expect Bank of Japan Rate Hike and Signal on Future Tightening

Several financial institutions and economists expect the Bank of Japan to raise interest rates at its current meeting, with many anticipating a gradual tightening path afterward.

According to Jin10, Goldman Sachs said it expects the BOJ to hike at this meeting, in line with consensus and market pricing, and then maintain a pace of roughly one rate increase about every six months.

MUFG also expects a hike this week and another increase later this year, adding that a 25-basis-point move has been fully priced in and is unlikely on its own to reverse the yen’s depreciation trend.

State Street Global Advisors expects a hike that would lift the policy rate to the psychologically important 1.0% level, and said the BOJ may hint at a second hike this year.

Oxford Economics said the BOJ is more likely to raise rates in June rather than July, warning that a delay would disappoint financial markets and could lead to further yen weakness.

Mizuho Bank said the probability of a hike at this meeting is high, with its baseline scenario also calling for increases about every six months thereafter.

A Reuters poll found 94% of economists expect the BOJ to raise the key rate to 1.00% in June, and also put the expected policy rate at 1.25% in the fourth quarter.

Former BOJ chief economist Seisaku Kameda said he expects a hike at this meeting and that a U.S.-Iran peace agreement is unlikely to change expectations for two hikes this year. He added that Deputy Governor Shinichi Uchida is expected to reaffirm the BOJ’s determination to keep raising rates while avoiding clear guidance on the timing of the next move.

On quantitative tightening, Mizuho expects the BOJ to conduct a midterm review of its bond-buying reduction plan at this meeting, potentially keeping the current pace unchanged until January to March next year, and possibly pausing or slowing the monthly reductions from April to June and beyond.

Deutsche Securities said that if the BOJ stops reducing monthly bond purchases, it would need to provide a full explanation, and that a simultaneous rate hike and halt to purchase reductions could be interpreted by markets and the public as a political deal with the government.

Separately, Bank of America expects a 25-basis-point hike in October this year, followed by further increases in March and July 2027, lifting the terminal rate to 1.75% by the end of 2027.