BlockBeats news: On January 16, Bloomberg's latest survey of 52 economists showed that exchange rate trends are becoming a key factor influencing the Bank of Japan's policy decisions. Against the backdrop of a continuously weakening yen and rising inflationary pressures, market expectations for the Bank of Japan to raise interest rates earlier than anticipated are intensifying.
The survey showed that all respondents expect the Bank of Japan to maintain its benchmark interest rate at 0.75% during the policy meeting on January 22–23. Regarding the timing of the next rate hike, July emerged as the most common expectation, supported by 48% of economists; 17% each expect a possible rate hike in April or June.
Economists generally expect the Bank of Japan to maintain a pace of interest rate hikes every six months going forward. However, if the yen continues to depreciate and pushes up inflation expectations, the central bank may be forced to act more quickly. Junpei Iwanami, an economist at Sumitomo Mitsui Trust Bank, noted that if the dollar-yen pair falls below the 160 level, the timing of rate hikes could be significantly advanced.
The yen's exchange rate is currently hovering around 158.5, close to its multi-decade low set in July 2024. In the survey, three-quarters of respondents believe that the weak yen is increasing the risk that the Bank of Japan will need to raise interest rates earlier than expected.
Regarding the interest rate path, economists have raised their median forecast for the "terminal rate" in this tightening cycle to 1.5%, the highest level since the survey began collecting data at the end of 2023. In addition, most respondents believe that the key focus of next week's meeting will be the Bank of Japan's updated quarterly economic outlook report, which will include for the first time the economic stimulus package introduced by the early-Hashimoto government, potentially signaling important clues about the future pace of rate hikes.