Reuters poll sees Bank of Japan hiking rates to 1.25% this year
Japan's rates may climb to 1.25% by year-end, a shift that could lift the yen and unsettle global bond and carry trades.
The Bank of Japan looks set to keep pressing away from its long era of ultra-cheap money, with economists expecting another rate hike this month and a second move later this year. If that path holds, borrowing costs would reach 1.25% by year-end, a change that matters far beyond Tokyo because it would ripple through global bond markets, support the yen and make cheap Japanese funding less dependable for investors around the world.
A poll of 70 economists taken from June 2 to June 8 showed how strongly that view has taken hold. Sixty-six respondents, or 94%, said the policy rate would rise to 1.0% by the end of June, and 53 of 67 expected it to reach 1.25% in the fourth quarter. All but one of 69 economists said the rate would be at least 1.0% by the end of September, underscoring how far expectations have shifted since spring.
Governor Kazuo Ueda helped sharpen that outlook with remarks in Tokyo on June 3. He said the central bank must weigh the pros and cons of raising rates if inflationary risks outweigh downside risks to the economy, a formulation that signaled a more hawkish stance than the BOJ’s earlier caution. The message was clear: after years of fighting deflation, policymakers now see the greater danger in allowing price pressures to linger rather than in moving too quickly.
The yen’s position near 160 per dollar adds urgency to that shift. Analysts have long viewed that level as a line that can intensify intervention concerns, and any hesitation by the BOJ could put further downward pressure on the currency. That makes the coming meetings about more than domestic inflation. They are also about defending credibility in foreign-exchange markets and limiting the risk that a weaker yen feeds back into higher import prices.
The BOJ has already crossed major milestones. It ended negative rates in 2024 and lifted its short-term policy rate to 0.5% in January 2025, the highest level since 2008. A move to 1.0% this month, followed by 1.25% later in 2026, would show that Japan is entering a different interest-rate era, one with higher mortgage costs, firmer corporate funding expenses and less easy money for the global investors who have borrowed in yen for years.
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