By Satoshi Sugiyama
TOKYO, May 15 (Reuters) – The Bank of Japan will raise its key interest rate to 1.0% in June, nearly two-thirds of economists said in a Reuters poll, as it presses ahead with efforts to normalise monetary policy amid rising inflation concerns from the war in Iran.
The policy rate was held steady at 0.75% last month to assess repercussions from the conflict but three of the BOJ’s nine board members dissented and called for a hike to 1.00%, signalling growing alarm over inflationary pressures from the war-driven energy shock.
BOJ board member Kazuyuki Masu, who voted to keep rates steady in April, said on Thursday the bank should raise interest rates as soon as possible if there are no clear signs of an economic slowdown, suggesting he could join dissenters in backing a rate hike next month.
In the May 7-14 poll, 65% of economists, 40 of 62, forecast the policy rate would rise to 1.0% by end-June, similar to an April survey. All but one of 62 respondents expected a hike by end-September.
Median forecasts showed the BOJ raising rates to 1.25% in the fourth quarter and to 1.50% in the third quarter next year, the same as last month’s poll.
“Given that economic, price and wage conditions that would make a rate hike feasible are, at present, still intact … we see the June meeting, roughly six months after the December 2025 meeting, as the most likely timing for the next hike,” said Yusuke Matsuo, senior market economist at Mizuho Securities.
RATE HIKE TO THE YEN’S RESCUE
The BOJ has also come under pressure after holding rates steady in April while Japanese authorities conducted repeated currency intervention to support the yen as it slid past the 160-per-dollar mark.
Many argue FX interventions like the roughly 10 trillion yen ($63.35 billion) spent in currency markets in recent weeks to stem the yen’s slide are less effective without tighter monetary policy.
Nomura Securities Chief Economist Kyohei Morita said the BOJ would also be inclined to raise rates in June to address upside price risks stemming from yen depreciation, which is hurting the Japanese economy by pushing up import costs.
Several economists, though, noted the BOJ may want to hold off if uncertainty over the war persists with Japan facing weaker consumption and the risk of production cuts due to supply chain disruptions.
Prime Minister Sanae Takaichi, a longstanding proponent of loose monetary policy, has also previously pushed back against BOJ tightening.
INFLATION A BIGGER THREAT THAN DEMAND SLOWDOWN
Unlike its U.S. and European peers, Japan’s policy rate at 0.75% remains below the neutral rate that neither stimulates nor restricts economic activity. With inflation around 2% the BOJ risks overheating the economy and weakening the yen further by keeping real borrowing costs deeply negative.
In the poll almost three-quarters of respondents, or 28 of 39, who answered an additional question said sustained inflation posed a bigger threat to the Japanese economy than a demand slowdown over the next 12 months.
“Authorities are trying to stem the yen’s slide by signalling their readiness to intervene, but the effect is likely to be limited given negative real interest rates and the risk that high crude oil prices will worsen the trade balance,” said Hiroshi Namioka, chief strategist at T&D Asset Management.
(Other stories from the Reuters global economic poll)
($1 = 157.8500 yen)
(Reporting by Satoshi Sugiyama; Polling by Renusri K; Editing by Vivek Mishra, Ross Finley and Sam Holmes)
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