US steps up pressure! Nearly 90% of economists bet the Bank of Japan will raise interest rates to 1.25% on Friday

The Zhihui Finance APP noted that a survey shows the Bank of Japan is likely to raise its interest rate to 1.25% at the conclusion of its two-day meeting on Friday, due to rising inflationary pressures.

If there is a rate hike, it will mark an acceleration of the tightening cycle, faster than the six-month intervals the bank has followed since initiating policy normalization in March 2024. The Bank of Japan last raised rates in June.

Approximately 89% of respondents said they expect the Bank of Japan to hike by 25 basis points, citing higher inflation, rising wages, and pressure from the US government.

Driven by the Iran war which pushed energy costs higher, Japan's overall inflation in July rose to its highest level this year at 1.9%. In the same month, real wage growth was 2.4%, marking the seventh consecutive month of increases.

The United States has openly advocated for Japan to continue its rate hike cycle, putting pressure on Prime Minister Sanae Takaichi’s preference for loose monetary policy and expansionary fiscal measures.

Most recently, Treasury Secretary Besente at the G20 finance ministers and central bank governors’ meeting earlier this month, called on Bank of Japan Governor Kazuo Ueda to take “decisive market and monetary actions.”

The US supports a stronger yen because a weak yen may prompt Japan to sell US assets, including US Treasury bonds, to support its currency. Such moves could further push up US Treasury yields. At the end of July, both sides undertook a historic joint intervention to boost the yen.

Takahide Kiuchi, Executive Economist at Nomura Research Institute and former Bank of Japan Policy Board member, stated, “The Trump administration has essentially closed off any moves the Takaichi government might have considered to prevent the Bank of Japan from raising rates.” “As a result, the Bank of Japan has been given the freedom to proceed with rate hikes.”

Bank of Japan committee members have also made hawkish remarks, leaving room to accelerate the pace of rate hikes.

The survey was conducted from September 9 to 14, targeting 18 economists and analysts.

Some economists also stated that the Bank of Japan’s actions might surprise the market.

Jesper Koll, expert director at Monex Group, said he believes the Bank of Japan will opt for a “one-time” 50 basis point hike.

Carlos Casanova, Senior Asia Economist at Union Bank of Switzerland, expects the Bank of Japan to remain on hold for now, but believes it is behind the curve and will ultimately hike twice every six months by 25 basis points each time. “The data do not yet support a one-off policy shift,” he said, “so there is not enough visibility to support a faster rate hike pace. The Iran situation and oil prices remain major risks.”

When asked which Bank of Japan committee members were most likely to vote against a rate hike, about one-third of respondents mentioned Toichiro Asada and Ayano Sato. Both are seen as reflationists and were appointed by Sanae Takaichi earlier this year.

As for the yen, about 61% of respondents expect the yen to trade between 155 and 160 in the coming month.

Homin Lee, Senior Macro Strategist at Lombard Odier, said the Bank of Japan’s hawkish turn will help keep the yen stronger than 160. However, he noted that an appreciation past 150 “won't be easy,” as government and business officials will resist “inappropriate” rapid currency appreciation.