Reuters Poll: Japan Central Bank to Raise Rates to 1.25% in September

The latest Reuters survey shows that market expectations for a September rate hike by the Bank of Japan have significantly intensified, with policy shift signals becoming increasingly clear.

**Sharp Reversal in Expectations, Strong Calls for September Hike**

According to a Reuters survey of economists conducted from August 17 to 24, 57% of respondents expect the Bank of Japan to raise rates in September, lifting the policy rate from the current 1% to 1.25%. This marks a notable reversal from the July survey, when only 5% of respondents anticipated action in the current quarter. Among the 58 respondents who answered the question on the timing of the rate move, an additional 10 expect the Bank of Japan to hike further in October or December, raising the policy rate to 1.5%.

**Multiple Pressures Drive Earlier Policy Tightening**

The factors fueling expectations for a rate hike primarily stem from three areas: ongoing Middle East tensions pushing up imported energy costs, sustained yen weakness bringing imported inflation pressures, and rising domestic inflation levels in Japan. Bank of Japan Governor Kazuo Ueda has previously stated that delaying necessary policy adjustments could further expand the risk of inflation overshooting its target. U.S. Treasury Secretary Scott Bessent's attention to the yen exchange rate is also seen by the market as one of the factors increasing pressure on the BOJ to act earlier.

**Potential Fiscal Policy Tug-of-War Risk**

The survey also reveals a potential risk: among 28 economists who answered related questions, 25 (89%) believe that the fiscal policies of Japanese Prime Minister Takaichi Sanae will exacerbate yen weakness. The market worries that if the government pushes for food tax cuts and expanded investment spending without clear funding sources, it could further heighten fiscal concerns, creating new selling pressure on the yen and Japanese government bonds, and creating a tug-of-war with the BOJ's anti-inflation efforts.