Reuters poll sees Bank of Japan hiking rates by June as war fuels inflation expectations

Higher oil prices and a weaker yen have turned the Iran war into a direct test of Japan’s long-held easy-money stance, pulling the Bank of Japan closer to a rate hike that would ripple through household borrowing costs, wage negotiations and import bills. In a Reuters poll, 46 of 71 economists, or 65%, said the BOJ’s benchmark rate would reach 1.00% by the end of June, up from 60% in March and 58% in February.

The shift is striking because Japan is still only beginning to move away from years of ultra-loose policy. The BOJ left its benchmark rate unchanged at 0.75% at its March 18-19 meeting, but the next gathering on April 27-28 is now viewed as a critical test of how quickly policymakers will respond to the war’s second-order effects. Among respondents who named a specific month, 38% expected action in April and 35% in June, a split that leaves the April meeting unusually exposed to surprise.

The conflict has reinforced hawkish expectations by lifting energy prices, stoking renewed inflation pressure and pushing the yen down about 2% against the U.S. dollar since the war began. For Japanese households, that combination means more expensive fuel, food and utility costs at a time when wage gains remain uneven. For borrowers, even a gradual move toward higher rates would raise the cost of mortgages and business lending after years in which borrowing stayed exceptionally cheap.

The BOJ’s April meeting carries extra weight because it is also one of the four sessions when the bank typically releases its Outlook for Economic Activity and Prices, alongside January, July and October. That means officials could update both their inflation view and growth outlook just as the market is looking for clues on whether war-related price pressure will push policy faster than expected.

The debate inside the forecast is whether inflation is being driven by healthier domestic demand or by an imported energy shock. Tokyo core CPI rose 1.7% in March, down from 1.8% in February and still below the BOJ’s 2% target, even as higher crude prices threatened to push inflation back up in coming months. Rahul Anand, the International Monetary Fund’s Japan mission chief, said the BOJ can likely “see through” the direct inflation shock from the Middle East conflict because broader second-round effects should be limited.

Not everyone agrees that the bank can wait. Hiroshi Namioka of T&D Asset Management said a hike next week is possible because policymakers may not want to fall behind the curve as yen weakness strengthens the case for early action. Junki Iwahashi of Sumitomo Mitsui Trust Bank argued the opposite, saying a crude-oil spike tied to worsening Middle East conditions would raise inflation through cost pressures while also slowing the economy, making an immediate hike harder to justify. Former BOJ executive director Masaaki Kaizuka said the central bank should act in April to avoid falling behind on inflation control.

The median forecast in the poll points to 1.25% in the fourth quarter of 2026 and 1.50% in the third quarter of 2027, signaling a slow but persistent tightening path. The real question now is whether Japan’s next policy step is a measured normalization or the first sign that global conflict has forced the BOJ to move faster than it intended.