BOJ to raise rates to 1.25% this month, reach 1.75% faster than expected

• The Bank of Japan is expected to hike interest rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027, earlier than previously thought, a Reuters poll showed, amid ​persistent concerns over broadening price pressures and yen weakness.
• More than 80% of respondents said the joint U.S.-Japan yen-buying intervention to stem the currency's ‌slide to 40-year lows and remarks by Treasury Secretary Scott Bessent on BOJ policy had "significantly" or "somewhat" lowered political hurdles for rate hikes, underscoring Washington's growing sway over Japanese monetary policy and raising questions about the bank's independence.
• Bessent voiced strong support for "decisive" monetary steps to combat yen weakness in a meeting with BOJ Governor Kazuo Ueda this month during a gathering of ​G20 finance ministers and central bank governors. He also urged the BOJ to anchor inflation expectations and avoid excessive yen volatility through sound ​monetary policy.
• The September 1-8 survey showed all but two of 68 economists, or 97%, expected the BOJ to raise rates on September 18, up from 57% in a previous poll. Although still a minority, more than one-third, 24 of 66 economists, anticipated the bank would follow with another hike to 1.50% ​in either October or December, roughly double the share in August.
• Beyond this year, 89% of analysts, 57 ‌of 64, ⁠expected the policy rate to reach at least 1.50% by end-March next year, up from 65% last month. Around 62% saw the rate reaching at least 1.75% by the end of Q2 2027, three months earlier than predicted in August's poll.
• Half of 54 respondents who answered an extra question said 1.75% would be the terminal rate, unchanged from last month. The share of those choosing 2.00% or higher rose to 40% from 36% in August and 23% in July. Early hints of capital repatriation ​and expectations of a faster pace ​of monetary tightening by the BOJ ⁠, along with U.S. pressure, are combining to boost the yen, which traded around 153.37 per dollar on Wednesday, near its strongest level since February.
• Japan's budget requests for the next fiscal year totalled 143.1 trillion yen ($931.2 ​billion), swelling to pandemic-era levels as Prime Minister Sanae Takaichi's expansionary fiscal agenda drove government borrowing costs to three-decade highs. Some analysts said those concerns could rise further as the final size of the budget and the amount of new government bond issuance become clearer towards year-end.

(Source: Reuters)