The Bank of Japan is expected to raise rates this week, a CNBC poll shows

The Bank of Japan is expected to raise its key interest rate by 25 basis points this week, according to a survey of economists polled by CNBC.

As a result of the increase, the key rate of the Bank of Japan will be 0.5%, the highest level since 2008.

An overwhelming majority of 18 out of 19 economists agreed with the outlook for a rate hike, with most pointing to the recent change in tone at the BOJ’s leadership as a boost to their expectations. The survey was conducted from January 15 to 20.

Public comments Governor Kazuo Ueda and speech Vice Governor Ryozo Himino told business leaders last week that the Bank of Japan is ready to raise interest rates.

Ueda said on Jan. 16 that the central bank would raise rates if “economic and price improvements continue,” according to a Reuters report.

Meanwhile, Himino said the bank would discuss raising rates at an upcoming meeting, adding that it was “abnormal” for real interest rates to remain negative after Japan overcame deflationary factors.

The signal signals that the headwinds that prevented a rate hike last month are diminishing, according to several economists polled by CNBC.

However, they also noted that a key risk to this outlook is the uncertainty surrounding Donald Trump’s presidency and its potential impact on financial markets and Japan’s economy.

Uichiro Nozaki, an economist at Nomura Securities, described Himino’s performance as the “main catalyst” for their call for a rate hike.

“Based on (Himino and Ueda’s) comments, we felt that the Bank of Japan is more confident. Regarding the wage increase, Himino said that this is the main scenario where the wage increase to the 2024 level will take place in 2025.

Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities, backed his call for a rate hike, noting that recent comments from the BOJ indicated a “more positive tone on two key points, such as the outlook for wage growth in fiscal 2025 and uncertainty in regarding the future administration of the United States.”

Another common factor cited by economists in favor of a rate hike was the continued weakness of the yen, which fell to a six-month low of 158.37 before Himino’s Jan. 14 speech.

“The yen weakened significantly after the Bank of Japan decided not to raise rates in December,” said Stefan Angric, deputy director of Moody’s Analytics.

“This, combined with a series of hotter-than-expected inflation prints for consumer, producer and import prices, increases the chances of monetary policy action in January.”

Rising expectations of a rate hike this week supported the Japanese currency, which gained 1.24% in the seven days to Tuesday. The yen strengthened between July and September before weakening to 158 near the end of last year.

LSEG figures point to an almost 88% chance of a raise at the upcoming meeting.

Some economic indicators point in the right direction. Core inflation in Japan, excluding fresh food prices, has been at or above the Bank of Japan’s 2% target for 32 consecutive months, and in 2024. the largest increase in the salary of shunts was observed negotiations at the age of 33.

Himino said in his speech that the bank should pay close attention to wage increases in the 2025 fiscal year, which runs from April 2025 to March 2026.

“Each firm faces unique challenges, and raising wages is by no means an easy task. But I expect to see a strong wage increase in FY25, as we did in FY24,” he said.

However, data on household spending did not show much improvement. Since March 2023, household spending has declined every month on a year-over-year basis, except for two small increases in April and July 2024.

A weak spending figure could mean demand is weak, putting a dent in the BOJ’s “virtuous cycle.”