According to a media survey, due to uncertainties in the outlook, the Bank of Japan (BOJ) will forgo another interest rate hike this year. Currently, most economists expect the BOJ’s next rate hike to be postponed until early 2026.
Most of the surveyed economists also indicated that the BOJ will slow the pace of reducing its government bond purchases starting from the next fiscal year. Additionally, three-quarters of the respondents anticipate that the Japanese government will reduce the issuance of ultra-long-term bonds.
The latest results partly reflect Japanese policymakers’ concerns about the economic outlook, as US President Donald Trump’s erratic tariff policies are threatening the economic prospects, and investors are increasingly worried about Japan’s public finances.
Postponement of Interest Rate Hike Agenda
In March last year, the BOJ exited its decade-long massive economic stimulus program and raised short-term interest rates to 0.25% and 0.50% in July last year and January this year, respectively. Currently, the BOJ is in the phase of tightening its monetary policy.
However, the unexpectedly high inflation rate in April has added uncertainty to the BOJ’s path of exiting its ultra-loose monetary policy. Amid domestic inflation stickiness and the impact of US tariffs on global demand, the BOJ is undoubtedly facing a difficult balance between “safeguarding growth” and “combating inflation”.
Looking at the specific data from the aforementioned survey, none of the 60 analysts surveyed expect the BOJ to raise interest rates at its policy meeting on June 16-17.
Among the 58 economists surveyed, 30 (52%) expect interest rates to remain at 0.50% by year-end, whereas a survey in May showed that 52% of respondents expected interest rates to rise to 0.75% by the end of 2025.
The latest survey also indicates that more than three-quarters of the respondents (40 out of 51) currently expect at least one 25-basis-point interest rate hike by the end of March next year.
Recently, BOJ Governor Kazuo Ueda emphasized that if underlying inflation approaches the 2% target, the BOJ will be prepared to continue raising interest rates.
Slowdown in Bond Purchase Reduction
The BOJ began reducing its massive bond purchases last year to wean the economy off decades of large-scale stimulus. However, the survey showed that 17 out of 31 respondents believed that the BOJ would slow the pace of reducing its bond purchases after April next year.
Currently, the BOJ reduces its bond purchases by approximately 400 billion yen per quarter, and these respondents expected the quarterly reduction to range from 200 billion yen to 370 billion yen.
Additionally, 21 out of 28 economists (about three-quarters) stated that the government would reduce the issuance of super-long-term bonds, while the remaining economists believed the issuance size would remain unchanged.
Due to decreased demand from traditional buyers such as life insurance companies and concerns about steadily rising debt levels, the yield on super-long-term Japanese government bonds (JGBs) rose to a record high last month.
Recent reports have indicated that the Japanese government is considering repurchasing some of the super-long-term bonds issued at low interest rates, and it is expected that the government will further reduce the issuance size of super-long-term bonds.
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