Will the Bank of Japan raise interest rates again this year?

Bank of Japan Governor Ueda Kazuo said last week that although he refrained from specifying the timing, there is a possibility that the Bank of Japan will move on to raise interest rates if trend inflation, which is still below 2%, rises “a little more.”

“Even if our price outlook clearly overshoots or the median value is left unchanged, there is a high possibility that it will lead to policy changes if the upward risk of price forecasts clearly increases,” the governor stated.

This statement heightens the importance of growth rate and inflation rate forecasts up to 2026, which will be announced at the Bank of Japan's next policy meeting to be held on April 25-26.

The BOJ is unlikely to raise interest rates next month, but the new forecast will be a clue to how optimistic policymakers are about the possibility that trend inflation will rise to 2%.

According to a Reuters poll conducted after the March policy change, more than half of economists predict that the Bank of Japan will raise interest rates again by the end of this year, but most economists expect that interest rates will not be raised until at least the fourth quarter.

Some analysts believe that the depreciation of the yen could once again push up the cost of importing raw materials, so it could trigger further interest rate increases.

Governor Ueda stated that if the depreciation of the yen has a major impact on the economy and price forecasts, the Bank of Japan “is prepared to respond.”

Chief economist Kobayashi Shunsuke of Mizuho Securities said, “The Bank of Japan seems to be wary of the risk of one-sided depreciation of the yen.” “There is a pretty high possibility that the Bank of Japan will raise interest rates again from October to December.”

Also, at the Bank of Japan's monetary policy meeting to be held on July 25-26, there is a view that if data on whether wage increases will spread to small and medium-sized enterprises is available, there is a possibility that the Bank of Japan will go through with interest rate hikes.

“If there is a possibility that the inflation rate will overshoot, the Bank of Japan will take action as early as July,” said Mari Iwashita, a veteran BOJ watcher and chief market economist at Daiwa Securities.