Bank of Japan to Raise Rates Once More This Year to 0.75%, Most Likely in Q3

• The Bank of Japan will hike interest rates only once more this year, most likely during the third quarter to 0.75%, according to a majority of economists in a Reuters poll published on Thursday. The survey also showed analysts' median prediction for the rate of pay increases in wage talks this year is 5%, close to last year's 33-year-high, an encouraging sign for the BOJ to continue raising interest rates.
• It would leave the BOJ as a rare global outlier pushing for higher rates, albeit from a very low level, even as other major central banks cut rates to shore up their economies as concerns mount over U.S. President Donald Trump's tariff policies. All 61 economists in the February 12-18 poll expected borrowing costs to remain unchanged in the March 18-19 meeting and only a small minority, 19 of 61, saw at least one 25-basis-point hike to 0.75% next quarter.
• Over 65% of respondents, 38 of 58, predicted a rate hike to 0.75% in July or September. The Japanese swap market is pricing in another 35 basis points of rate hikes through to the end of the year or a 69% chance of two further 25-basis point increases.
• In January the BOJ raised its short-term interest rate to 0.50% from 0.25%, the highest since the 2008 global financial crisis, reflecting its conviction Japan was making progress in sustainably achieving its 2.0% inflation target. A BOJ board member said on Wednesday the central bank must increase borrowing costs more as keeping them at current low levels could cause excessive risk-taking and cause an inflation spike.
• Separately, the median of 28 economists who offered their view on the rate of pay increases at this year's spring labour-management negotiations was 5%, up from 4.75% in a poll last month. It was the first time the poll median touched 5% for wage increases.

(Source: Reuters)