By Satoshi Sugiyama
TOKYO, March 11 (Reuters) – The Bank of Japan will keep its key interest rate at 0.75% next week but likely raise it to 1.00% by end-June, a Reuters poll found, expectations that are broadly unchanged from before the start of the U.S.-Israeli war against Iran.
War in the Middle East has stoked global inflation fears due to escalated oil prices, complicating the policy path for central banks as they grapple with negative supply shocks and potential hits to economic growth.
Given Japan’s heavy reliance on Middle Eastern oil, the BOJ may be more compelled to raise rates as higher crude prices and a weaker yen raise import costs. However, the oil market has also seen sharp swings and its outlook remains highly uncertain.
But for now, expectations have remained broadly similar to a poll last month, as has the stance of policymakers.
In a March 2-9 Reuters survey, all 64 respondents said the BOJ would keep rates unchanged at 0.75% on March 19. But 60% of economists, 37 of 62, predicted the policy rate would reach 1.00% by end-June, largely unchanged from 58% in February’s poll.
Of 44 economists who specified a month for the next rate hike, June was the top pick at 32%. Another 30% chose July, while 27% selected April.
“The BOJ would probably be unable to delay the pace of interest rate hikes to avoid further weakening of the yen,” said Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance.
The yen is down about 1% against the U.S. dollar since the start of the war and has weakened more than 6% over the last six months.
SLOW PACE OF RATE RISES AHEAD
There is not much conviction, however, about the speed of further interest rate rises.
The BOJ was expected to wait until the first quarter of 2027 to raise rates to 1.25% and then another year to early 2028 to lift rates to 1.50%, poll medians showed.
Kei Fujimoto, senior economist at Sumitomo Mitsui Trust Asset Management, said price rises driven by crude oil were unlikely to immediately affect underlying inflation and probably be treated as a temporary fluctuation at this point, meaning it would not have an immediate impact on policy.
BOJ Governor Kazuo Ueda told lawmakers last week the central bank would continue to raise interest rates if its economic forecasts materialise, but warned of a potential hit to global growth from the Middle East war.
NEW BOJ APPOINTEES WON’T DELAY RAISING RATES
The addition of two academics to the BOJ’s policy board, who were nominated by the Japanese government in late February and seen by markets as strong advocates of economic stimulus, would not hinder delivery of future rate hikes, 58% of economists – 18 of 31 – said in the survey.
“Since the share of ‘reflationists’ among the nine board members is not high, their voting behaviour and other actions are likely to have only a limited direct impact on policy decisions,” said Yusuke Matsuo, senior market economist at Mizuho Securities.
However, Matsuo added the government’s nomination underscores Prime Minister Sanae Takaichi’s opposition to an early additional rate hike under her expansionary fiscal policy, with little sign she is willing to compromise.
Over half of respondents, 17 of 31, said there was “neither high nor low” risk the BOJ falls “behind the curve” in taming inflation, little changed from when the same question was asked in January.
Another 19% said the risk was “high”, 16% said “low”, and 6% said the BOJ was “already behind the curve.”
(For other stories from the Reuters global economic poll)
(Reporting by Satoshi Sugiyama; Polling by Susobhan Sarkar and Renusri K; Editing by Vivek Mishra, Ross Finley and Sam Holmes)
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