TOKYO :The Bank of Japan will raise its key interest rate in either October or December, a majority of economists said in a Reuters poll, while nearly 96 per cent of them expect borrowing costs to increase at least 25 basis points by end-March.
Although Sanae Takaichi, a fiscal dove who insisted the government reassert its sway over the central bank, became prime minister, two-thirds of respondents, 20 of 30, said that would not delay the BOJ’s push for slightly tighter monetary conditions.
In the October 14-20 poll, 60 per cent of economists, or 45 of 75, expected the Japanese central bank to raise short-term interest rates to 0.75 per cent from 0.50 per cent this quarter.
By end-March, about 96 per cent, or 64 of 67, forecast borrowing costs to reach at least 0.75 per cent.
Of 35 economists who specified a month for when the BOJ will next hike rates, January next year was top choice with 46 per cent, 31 per cent for December and 14 per cent choosing October.
“The balance within the BOJ’s policy board is clearly shifting towards interest rate hikes,” said Kento Minami, senior economist at Daiwa Securities.
While uncertainties on domestic politics and the global economy will likely delay the timing of a rate hike, upside risks to inflation stemming from the yen’s depreciation have increased, Minami said.
“The case for an earlier rate hike remains unchanged,” he said.
Financial markets are pricing in about a 40 per cent chance of a rate hike by year-end.
Takaichi, who became prime minister on Tuesday, pledged to boost government spending in essential sectors like energy and economic security under her “responsible, proactive fiscal policies.”
In the poll, 67 per cent of respondents, or 18 of 27, who answered an extra question couldn’t say whether they approved or disapproved of Takaichi’s economic policies.
Separately, nearly two-thirds, 17 of 26, said they were concerned about her policies’ impact on fiscal health.
“With the ruling party losing its majority in both houses of parliament, it has no choice but to pursue expansionary fiscal policies to secure opposition cooperation,” said Junki Iwahashi, senior economist at Sumitomo Mitsui Trust Bank.
Still, Iwahashi added market pressures – like a rise in long-term yields – would act as a restraint on fiscal expansion.
(Other stories from the Reuters global economic poll)
