BOJ to speed up its tightening campaign, raise key rate to 1.25% in September: Reuters poll

The Bank of Japan (BOJ) will likely raise interest rates more rapidly than previously anticipated, with a potential increase to 1.25% in September, according to a Reuters poll of economists. This shift in expectation comes partly due to growing concerns about inflation stemming from the recent U.S.-Israeli conflict with Iran, as well as persistent selling pressure on the yen despite previous interventions.

The BOJ has been considering more aggressive rate hikes since early August, following U.S. Treasury Secretary Scott Bessent's remarks. In the August 17-24 survey, 57% of economists expected a rate hike in September, a significant contrast from the 5% who predicted such a move in July. The rate is projected to reach at least 1.5% by the end of March next year, three months earlier than the July poll's prediction.

Around 60% of respondents foresee the rate reaching at least 1.75% by the end of Q3 2027, while 36% expect it to reach 2% or above. However, 89% of economists believe that Japan's Prime Minister Sanae Takaichi's fiscal policy is contributing to the yen's depreciation, as concerns persist over the funding of planned tax cuts and investment spending.