BOJ December rate hike to 1.50% expected by 69% of economists: Reuters poll

The survey solidifies December as the probable timing for the BOJ's next rate action, reducing the yen's reaction to the 30 October gathering but increasing the importance of the December meeting. The larger currency risk might come from the voting pattern: with the yen just slightly above its 2026 trough, renewed opposition from government-appointed board members, similar to September, could be interpreted as political pushback against tightening and cause further selling. Rising energy and import costs due to the Middle East conflict keep crude oil as a key factor in Japan's inflation picture, so another increase in oil prices would probably strengthen the argument for rate hikes. For Japanese government bonds, the move toward a terminal rate of 2% or more, along with fiscal worries, suggests ongoing upward pressure on yields.

A majority of economists anticipate the BOJ will continue quarterly rate increases, and the primary threat to the yen is not when the next hike occurs but which members oppose it.

Summary:

• In the 13–19 October Reuters survey, 54 out of 78 economists (69%) predict the BOJ will raise its policy rate to 1.50% in the current quarter, compared with 36% in the previous month's poll.
• Among respondents who specified a month, roughly 80% selected December, while just 2% opted for the meeting concluding on 30 October.
• Sixty per cent forecast the rate hitting 1.75% by June 2027, and 51% now anticipate a terminal rate of at least 2.00%, versus 40% in September.
• Almost 75% of economists stated that additional opposition at the next tightening could pressure the yen, which stands roughly 4% above its 2026 trough around 164 per dollar.
• About two-thirds of respondents expect the government to cap new bond issuance at under 40 trillion yen for the fiscal year 2027.

The Bank of Japan is projected to increase its benchmark rate to 1.50% in December, based on a Reuters economist survey, continuing a rhythm of quarterly moves following rate rises in June and September.

Among the 78 economists polled from October 13 to 19, 54 (nearly 70%) anticipate a hike to 1.50% in the fourth quarter, almost twice the proportion in the earlier survey. Of economists who indicated a specific month, roughly 80% picked December, and only 2% foresee a move at the two-day meeting ending 30 October.

The survey indicated that rising energy and import costs, exacerbated by a depreciating yen and the Middle East conflict, are fueling inflationary pressures. A spell of comparative calm for the yen, which experienced aggressive selling for most of the year and drew intervention from Japan and the US Treasury, also bolsters the argument for a December rate increase. BOJ board member Junko Koeda stated last week that the central bank should avoid excessive caution in hiking rates, currently at a 31-year high, given notable upside inflation risks.

Not all economists agree on rapid action. Some contended that the economy is not overheating sufficiently to warrant consecutive rate increases and that price levels stay within the BOJ's forecasted band. Reuters sources reported that many BOJ policymakers prefer to assess how previous hikes have impacted financial conditions before proceeding.

Views on the peak rate have risen. Sixty percent of respondents expect the policy rate to hit 1.75% by June next year, while the proportion forecasting 2.00% or more climbed to 51% from 40% in September.

Political factors continue to pose a threat to the yen. In September, two board members appointed by Prime Minister Sanae Takaichi, who advocate for looser fiscal policy, opposed the rate increase to 1.25%. Almost 75% of economists indicated that additional opposition at the next tightening could pressure the yen, currently about 4% above its 2026 bottom near 164 per dollar.

Regarding fiscal policy, roughly two-thirds of economists anticipate the government will maintain new bond sales under 40 trillion yen (roughly $250 billion) for fiscal 2027, following Takaichi's statement that she intends to keep issuance near that mark.

Since the Federal Reserve and the European Central Bank are also projected to hike rates in December based on other Reuters surveys, the BOJ's upcoming decision will be evaluated not only on the rate change but also on the voting breakdown.