Reuters poll: BOJ expected to raise rates to 1.50% in December, maintaining quarterly pace of hikes

Title context: Reuters poll: BOJ expected to raise rates to 1.50% in December, maintaining quarterly pace of hikes Text: A Reuters poll shows that most economists expect the Bank of Japan to raise rates to 1.50% in December, following the hikes in June and September and extending the relatively rapid quarterly pace of increases in this tightening cyclea cycle that began with the BOJ raising rates only once a year. A weak yen and the Middle East conflict are pushing up energy and import costs, intensifying Japan's inflationary pressure. The number of respondents expecting at least two more hikes, reaching 2.0% by mid-next year, has increased. The yen has faced heavy selling pressure for most of this year, triggering intervention by Japanese authorities and the U.S. Treasury. The yen's recent relative stabilization also supports a December hike. Last week, BOJ board member Junko Koeda said that given significant upside inflation risks, the central bank should not be overly cautious about raising rateswith the current rate already at its highest level in 31 years. In the survey conducted from October 13 to 19, 54 of 78 economists (nearly 70%) expected the BOJ to raise the policy rate to 1.5% this quarter, nearly double the proportion in the previous survey. Of the 54 respondents who specified a hike month, about 80% chose December, and only 2% chose the BOJ's next two-day policy meeting ending October 30. "Given that both the U.S. and Europe may raise rates before year-end, if the BOJ delays action until the new year, yen selling could accelerate," said Kazutaka Maeda, senior economist at Meiji Yasuda Research Institute. Other Reuters surveys show that the BOJ is expected to hold steady this month, while the Federal Reserve and the European Central Bank are expected to raise rates in December. "The economy is not overheating to the extent that consecutive rate hikes are needed, and price trends are within the BOJ's expected range," said Takeshi Minami, chief economist at Norinchukin Research Institute. Sources said many BOJ officials prefer to assess more data to judge the impact of previous rate hikes on financial conditions. Rates expected to rise to 2% or higher Looking ahead to next year, 39 of 65 analysts (60%) expect the policy rate to reach 1.75% by the end of June next year, with the median proportion unchanged from the September survey. Of the 41 respondents who answered an additional question, nearly half believe 1.75% will be the terminal rate. However, the proportion expecting rates to reach 2.00% or higher rose to 51%, up from 40% in September and 36% in August. In September, two board members appointed by Prime Minister Sanae Takaichi who support loose fiscal policy opposed the decision to raise rates to 1.25%. Traders viewed the dissenting vote as a signal that the BOJ's rate hike plan could continue to face resistance from the Takaichi government, and the yen briefly weakened. Nearly three-quarters of respondents (23 of 32) said that if another dissenting vote appears when the policy board next raises rates, it could pressure the yenwhich is currently only about 4% above its low of around 164 per dollar in 2026. "If the dissenting vote comes especially from board members appointed by the Takaichi government, it could be interpreted as the government trying to suppress rate hikes, exacerbating market concerns that future policy tightening may fall behind the curve," said Kei Fujimoto, senior economist at Sumitomo Mitsui Trust Asset Management. Government bond issuance expected below 40 trillion yen Japanese government bond yields have recently risen along with the global market selloff, also driven by expectations of further rate hikes and concerns that Takaichi's large-scale spending and tax cut plans will worsen Japan's already strained fiscal position. Takaichi said the government plans to keep new bond issuance for the fiscal 2027 budget at around 40 trillion yen ($251 billion). She reiterated on Monday that Tokyo will control debt issuance "appropriately." Nearly two-thirds (15) of the 23 economists surveyed said new bond issuance will remain below 40 trillion yen. "The government may be eager to increase government bond issuance as a funding source for growth investment," said Junya Takemoto, senior economist at Sumitomo Mitsui Banking Corporation. "However, as concerns about rising market rates intensify, the government may curb issuance by conducting a comprehensive review of existing subsidy and fund budgets, ensuring that government bond issuance does not deviate significantly from historical levels."