A Reuters poll showed the Bank of Japan (BoJ) will hike interest rates to 1.25% at its September policy meeting and then to 1.75% in the second quarter (Q2) of 2027, earlier than previously expected, amid persistent concerns over broadening price pressures and Japanese Yen (JPY) weakness.
82% of economists said the joint US-Japan Yen-buying intervention to stem the JPY’s slide to 40-year lows and remarks by Treasury Secretary Scott Bessent on BoJ policy had “significantly” or “somewhat” lowered political barriers for rate hikes.
September 1-8 survey showed all but two of 68 economists expected the BoJ to raise rates on September 18, up from 57% in a previous poll. More than one-third, 24 of 66 economists, anticipated the Japanese central bank would follow with another hike to 1.50% in either October or December, roughly double the share in August.
Beyond this year, 89% of analysts, 57 of 64, see the policy rate reaching at least 1.50% by the end of March next year, up from 65% last month. Around 62% saw the interest rate reaching at least 1.75% by the end of Q2 2027, three months earlier than predicted in August’s poll.
Market reaction
At the time of writing, the USD/JPY pair is up 0.05% on the day at 153.60.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
