"Inflation fighter" about to launch? Bank of Japan raising interest rates by 25 basis points next week may be confirmed.

Notice that, according to observers from the Bank of Japan, the bank is predicted to raise interest rates twice this year - with the first increase expected to take place next week - as they increasingly believe that the situation in Iran may lead to sustained high inflation. According to a survey, out of 51 economists surveyed, approximately 49 expect the Bank of Japan's policy committee to raise the key interest rate by 25 basis points to 1% at the two-day meeting ending on June 16, which would be the highest level since 1995. The survey also shows that respondents expect the rate to rise to 1.25% by the end of the year, indicating another rate hike at that time. The background of this survey is that the high international oil prices are prompting global monetary authorities to adopt a hawkish stance. It is widely expected that the European Central Bank will raise interest rates this week for the first time since 2023, and several officials from the Federal Reserve have recently changed their stance, hinting at the possibility of a rate hike before the end of the year. Following signals released by Bank of Japan Governor Haruhiko Kuroda last week, expectations for a rate hike in Japan have increased. He stated that he is more concerned about the upward risks to prices compared to potential economic impacts from the turmoil in the Middle East. Naomi Muguruma, Chief Bond Strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in her survey response, "The focus of this meeting will be on how far Governor Kuroda will go in discussing the possibility and necessity of speeding up the rate hike pace - in other words, whether he will indicate that he is transitioning to an 'inflation fighter'." According to 94% of respondents, Kuroda's remarks last week have made a rate hike in June either a certainty or a highly probable event. Additionally, 60% of respondents believe that there is an increased risk that the Bank of Japan could fall behind the situation in dealing with inflation, which is the highest level since the question was first raised in last July's survey. Kazuhiko Sano, Chief Bond Strategist at Tokai Tokyo Securities, stated, "If the Bank of Japan does not raise rates, concerns about its actions lagging behind may increase, which could trigger a sharp rise in long-term interest rates." Despite geopolitical pressures, the performance of the Japanese economy has remained relatively strong so far. Revised GDP data released on Monday showed that the Japanese economy grew at an annualized rate of 1.8% in the early part of this year, marking the second consecutive quarter of expansion. In this context of economic resilience, regulatory authorities are considering a 25 basis point rate hike next week, with the possibility of further rate hikes later this year. Approximately 71% of economists surveyed expect the Bank of Japan to raise rates approximately every six months. Economists, including Yoshimasa Maruyama from Nomura Securities, predict that the next rate hike will occur in October. Prime Minister Sanae Takaichi of Japan is seen as complicating efforts to normalize monetary policy at the Bank of Japan, as she has previously publicly supported monetary easing. About 75% of respondents believe that if the Bank of Japan skips a rate hike this month, it will deepen the market's perception that the Prime Minister has set a high threshold for rate hikes. Another focus of the Bank of Japan's meeting will be an update on its monthly bond purchase plan that began in April 2027. Under the current plan, the Bank of Japan's bond purchases will decrease to around 2.1 trillion yen per month at that time. The majority of analysts predict that the Bank will slow down the pace of reducing monthly bond purchases. However, there is a difference of opinion among economists on whether the regulatory authorities will "stop reducing bond purchases" or "continue to reduce at a slower pace." Approximately 44% believe that the Bank will stop reducing the size of bond purchases, 36% believe they will slow down the pace of reduction, and another 18% believe they will maintain the pace of reducing by 200 billion yen per quarter. According to 52% of economists, the debate over reducing bond purchases has become more complicated as there are concerns that doing so may create the impression that the central bank is assisting the government of Prime Minister Takaichi, who has committed to implementing responsible but proactive fiscal spending. Naoya Hasegawa, Chief Bond Strategist at Okayama Securities, stated, "I expect the Bank of Japan to pause the reduction of bond purchases." "However, due to concerns that this move may be seen as giving in to political pressure and may result in a depreciating yen or higher long-term yields, the Bank may choose to slow down quantitative tightening rather than completely stop it."