The latest survey indicates that slightly more than half of the economists predict that due to the uncertainty of the US tariff policy, the Bank of Japan (BOJ) will forgo raising interest rates again this year. The next 25 basis point rate hike is expected to be postponed until early 2026.
Most respondents also believe that the BOJ will slow the pace of reducing the scale of government bond purchases starting from the next fiscal year. Meanwhile, three-quarters of the respondents expect the government to cut the issuance of ultra-long-term government bonds.
This latest result reflects the concerns of policymakers—that US President Trump’s capricious tariff policy is threatening the economic outlook, and that investors’ worries about Japan’s public finances are also deepening.
Unlike other major central banks that tend to cut interest rates, the BOJ is still pushing for tighter monetary conditions. Governor Kazuo Ueda emphasized that if the potential inflation rate approaches the 2% target level, the central bank is prepared to continue raising interest rates.
Survey Details
Among the 60 economists surveyed from June 2nd to 10th, none expected the BOJ to raise interest rates at its policy meeting on June 16th and 17th.
Specifically, among the 58 surveyed economists, 30 (52%) expect borrowing costs to remain at 0.50% until the end of the year. This contrasts sharply with the survey results in May, when 52% of respondents expected interest rates to rise to 0.75% by the end of 2025. The interest rate futures market currently only prices that the BOJ will raise interest rates by about 17 basis points again before the end of the year.
The survey shows that 40 out of 51 respondents (more than three-quarters) now expect at least one 25 basis point interest rate hike before the end of March next year.
Among the 35 economists who clearly predicted the month of the next interest rate hike, 37% chose January 2025, 23% chose October this year, and 9% chose March 2025. The BOJ withdrew from the large-scale stimulus program in March last year, raised short-term interest rates to 0.25% in July, and further increased them to 0.50% in January this year.
Bond Purchase Reduction
Slightly more than half (17 people) of the 31 respondents believe that the BOJ will slow down the reduction in its purchase of Japanese government bonds from the current approximately 400 billion yen per quarter starting from April next year. The respondents’ forecast range for the quarterly reduction scale is between 200 billion and 370 billion yen. Although the BOJ still holds about half of its outstanding Japanese bonds, it began to scale back its huge bond purchases last year in an attempt to free the economy from the strong stimulus that has lasted for decades.
Ultra-Long-Term Bond Issuance
Among the 28 economists, 21 (75%) expect the government to cut the issuance of ultra-long-term Japanese government bonds, while the rest believe that the issuance volume will not change. Last month, the yield on ultra-long-term Japanese government bonds rose to a record high due to the decline in demand from traditional buyers such as life insurance companies and concerns over the continuous rise in debt levels.
Media reports say that the government is considering repurchasing some of the ultra-long-term bonds issued during the period of low interest rates on the basis of the planned reduction in the issuance of ultra-long-term Japanese bonds.
Seventeen respondents believed that the issuance of 30-year Japanese government bonds would decrease, sixteen chose the 40-year term, and ten chose the 20-year term (respondents could make multiple choices). Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, pointed out: “Due to the persistently weak auction results, the Ministry of Finance is under great pressure to reduce the issuance of ultra-long-term Japanese bonds starting from July.”
Related Topics:
