BOJ Set to Raise Rates to 1.25%, a Three-Decade High, CNBC Survey Shows

The Bank of Japan is expected to raise its policy rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday, according to a CNBC survey of 18 economists and analysts. About 89% of respondents expect the hike, citing higher inflation, higher wages and pressure from the U.S. government.

The move would take Japanese rates to a fresh three-decade high and signal an acceleration of the tightening cycle, faster than the six-month interval the BOJ has followed since it began policy normalisation in March 2024. The Bank last raised rates in June.

Inflation and wages drive the case

Japan's headline inflation for July hit its highest level this year at 1.9%, lifted by energy costs tied to the Iran war. In the same month, real wages rose 2.4%, the seventh straight monthly increase.

U.S. officials have been vocal about Japan continuing its hiking cycle, pressuring Prime Minister Sanae Takaichi's preference for easy monetary policy and expansionary fiscal policy. Treasury Secretary Scott Bessent told BOJ Governor Kazuo Ueda to take "decisive market and monetary steps" at the G20 finance ministers and central bank governors meeting earlier this month.

Washington favours a stronger yen, since a weak one could push Japan to sell U.S. assets, including Treasurys, to shore up its currency. That could drive Treasury yields higher. In late July, the two sides conducted a historic joint intervention to strengthen the yen.

"The Trump administration has effectively checked any potential move by a Takaichi administration to block the Bank of Japan from raising interest rates," said Takahide Kiuchi, executive economist at Nomura Research Institute and a former BOJ policy board member. "Consequently, the Bank of Japan has gained a free hand to proceed with rate hikes."

Dissent and the yen view

The survey was conducted Sept. 9-14. Jesper Koll, expert director at Monex Group, sees the BOJ hiking by 50 basis points in a "one and done" move. Carlos Casanova, senior economist for Asia at UBP, expects the BOJ to stand pat for now, though he thinks it is behind the curve and eventually expects two 25 basis point hikes every six months.

"Data doesn't yet support a regime shift," he said, adding there is "insufficient visibility to justify a faster pace of rate hikes. Iran tensions and oil prices remain the main risk."

On dissent, about a third of respondents named Toichiro Asada and Ayano Sato as the board members most likely to vote against a hike. Both are seen as reflationists and were appointed by Takaichi earlier this year.

Around 61% of respondents expect the yen to trade between 155 and 160 in the next month. Homin Lee, senior macro strategist at Lombard Odier, said the BOJ's hawkish shift will help keep the yen stronger than 160, but appreciating past 150 "will not be easy" because government and business officials will push back against "inappropriately" fast currency appreciation.