Economist: Bank of Japan Most Likely to Hike Rates in July, Yen Depreciation May Force Early Action

**Bloomberg Survey: Yen Movements Key to BOJ Policy; Market Eyes Earlier Rate Hike** A January 16 Bloomberg survey of 52 economists finds exchange rate dynamics are emerging as a critical variable shaping the Bank of Japan’s (BOJ) policy decisions. Amid persistent yen weakness and rising inflationary pressures, market expectations for an early BOJ rate hike are growing. All respondents unanimously expect the BOJ to hold its benchmark rate steady at 0.75% at its January 22-23 policy meeting. For the next rate hike, July is the most popular call (48% of economists), while 17% each see a move in April or June. Economists broadly project the BOJ will stick to a once-every-six-months rate-hike pace going forward. But sustained yen depreciation pushing up inflation expectations could force the central bank to accelerate action. Junju Iwahashi, an economist at Sumitomo Mitsui Trust Bank, noted a dollar-yen drop below 160 could significantly speed up the rate-hike timeline. The yen is currently trading around 158.5 to the dollar, near the multi-decade low hit in July 2024. Three-quarters of respondents say the risk of yen weakness forcing an early BOJ hike is rising. On the rate path, the median forecast for the cycle’s “terminal rate” has been lifted to 1.5%—the highest since Bloomberg began tracking the metric in late 2023. Most also expect the BOJ’s updated quarterly economic outlook (the first to include Prime Minister Hidetoshi Akishichi’s administration’s economic stimulus package) will be next week’s key focus, potentially signaling future hike pace.