Key takeaways
- The BOJ is expected to maintain its policy rate at 0.75% at the upcoming meeting on March 19, according to a March 2-9 survey of economists.
- Sixty percent of economists surveyed project the policy rate will rise to 1.00% by the end of June.
- Forecasts for further tightening beyond mid-2024 remain moderate, with median expectations pointing to incremental increases through 2027 and early 2028.
The Bank of Japan is widely expected to leave its short-term policy rate at 0.75% at its meeting on March 19, with most forecasters anticipating a subsequent rise to 1.00% by the end of June. Those are the central findings of a market survey conducted between March 2 and March 9.
The geopolitical situation in the Middle East - described in the survey context as the U.S.-Israeli war against Iran - has elevated concerns about global inflation through upward pressure on oil prices, complicating central bank decision-making. For Japan, which depends heavily on oil imports from the region, higher crude valuations combined with a weaker yen would push up import costs and could increase the urgency of monetary tightening, though the outlook for oil remains volatile.
Poll details and timing for the next hike
All 64 respondents in the March 2-9 survey said they expect the BOJ to keep its policy rate at 0.75% on March 19. Looking further ahead, 60% of economists - 37 of 62 - predicted the BOJ would raise the policy rate to 1.00% by the end of June. That proportion is broadly unchanged from a February survey, when 58% expected a similar move.
When forecasters were asked to specify the likely month for the next hike, 44 provided a month. Among them, June was the most frequently selected option at 32%. Another 30% of those forecasters chose July, and 27% picked April.
Views from economists and BOJ officials
Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance, said: "The BOJ would probably be unable to delay the pace of interest rate hikes to avoid further weakening of the yen." The currency has weakened about 1% against the U.S. dollar since the start of the regional conflict and has depreciated more than 6% over the past six months.
Kei Fujimoto, senior economist at Sumitomo Mitsui Trust Asset Management, cautioned that price increases driven by crude oil are "unlikely to immediately affect underlying inflation and probably be treated as a temporary fluctuation at this point," adding that such moves would likely not trigger an immediate policy response.
BOJ Governor Kazuo Ueda has told lawmakers the central bank will continue to raise interest rates if its economic forecasts come to pass, while also warning that the Middle East conflict could weigh on global growth.
Projected pace of subsequent hikes
Despite expectations for a move to 1.00% by end-June, the survey median indicates a cautious trajectory thereafter. Respondents expect the BOJ to reach 1.25% in the first quarter of 2027 and to raise rates again to 1.50% around early 2028, reflecting a slow, incremental tightening path.
New policy board appointees and governance
The government nominated two academics to the BOJ policy board in late February. Markets view those appointees as leaning toward stimulus, yet a majority of economists in the survey believe their presence will not prevent further rate increases. Fifty-eight percent - 18 of 31 respondents on this question - said the new appointees would not hinder future hikes.
Yusuke Matsuo, senior market economist at Mizuho Securities, offered context on board dynamics, saying that the share of so-called "reflationists" among the nine members is not large enough to markedly alter voting outcomes and that any direct effect on policy decisions should be limited. He also noted the government's nominations reflect Prime Minister Sanae Takaichi's preference for expansionary fiscal policy and her resistance to earlier additional rate hikes.
Risk of falling behind the curve
Survey respondents were divided on the risk that the BOJ might lag in reining in inflation. Of 31 economists answering this question, 17 said the risk was "neither high nor low," 19% said the risk was "high," 16% said it was "low," and 6% said the BOJ was "already behind the curve." These responses were little changed from similar questions asked in January.
Implications
The survey paints a picture of a central bank likely to move cautiously but steadily higher in the near term, under pressure from energy-driven price dynamics and currency depreciation. Expectations for a gradual pace of tightening beyond mid-2024 suggest markets are not braced for aggressive tightening, even as policymakers weigh external shocks to inflation and growth.