According to a Reuters poll published on Wednesday, the Bank of Japan (BOJ) is expected to raise interest rates again by the end of the year, with a majority of economists predicting a December increase.

The survey, conducted from August 13 to 19, revealed that 57 per cent of the 54 economists polled anticipate the BOJ will raise borrowing costs by 25 basis points to 0.50 per cent by year-end. Among a subset of 22 economists who forecasted a rate hike and specified a month, around two-thirds predicted December, while one-third favoured October.

Atsushi Takeda, chief economist at Itochu Research Institute, stated, "The current policy rate is extremely accommodative. The BOJ will continue to raise interest rates towards the neutral rate as long as the 2 per cent price stability target is expected to be achieved."

The BOJ surprised many market participants in July by increasing base borrowing costs to 0.25 per cent from a range of 0 per cent to 0.1 per cent, just four months after abandoning negative rates. At that time, BOJ Governor Kazuo Ueda indicated the likelihood of steady rate hikes in the future.

However, Ueda's remarks came shortly before significant market turmoil saw the yen surge against the U.S. dollar and the Tokyo stock market experience its largest drop in 37 years. Since then, markets have stabilised.

BOJ Deputy Governor Shinichi Uchida later tempered Ueda's hawkish stance, assuring that borrowing costs would not be raised during periods of market instability. Despite this, economists believe the BOJ's overall approach remains unchanged.

Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, commented, "It is too early to assume that the market turmoil following the July rate hike has altered the BOJ's planned path for future rate increases."

Japan's economy grew at a much faster-than-expected annualised rate of 3.1 per cent in the second quarter, rebounding from an earlier slump due to a strong rise in consumption, according to government data released last week. The poll forecasts growth of 0.6 per cent for the current fiscal year ending in March 2025, and 1.1 per cent for the following year, with inflation averaging 2.4 per cent this fiscal year and 1.9 per cent next.

Source: Reuters