Interest rate hike postponed! Over half of economists expect the Bank of Japan to start raising interest rates next year

According to the latest survey by Zhitong Finance APP, just over half of economists predict that due to the uncertainty of U.S. tariff policies, the Bank of Japan will abandon further interest rate hikes this year, with the next 25 basis point increase expected to be postponed until early 2026. Most respondents also believe that the Bank of Japan will slow down the pace of reducing government bond purchases starting from the next fiscal year, while three-quarters of respondents expect the government to cut the issuance of ultra-long-term government bonds. This latest result reflects policymakers' concerns—U.S. President Trump's erratic tariff policies are threatening the economic outlook, and investors' worries about Japan's public finances are also deepening. Unlike other major central banks that tend to lower interest rates, the Bank of Japan is still pushing for tighter monetary conditions. Governor Kazuo Ueda emphasized that if the underlying inflation rate approaches the target level of 2%, the central bank is prepared to continue raising interest rates. Takumi Kakuta, a senior economist at Shinkin Central Bank Research Institute, stated: "If trade negotiations between the U.S. and other countries make progress, global economic activity is expected to pick up. Although the timing of policy rate hikes is more likely to be delayed than previously predicted, the Bank of Japan is expected to implement an additional rate hike in the first quarter of 2026." Among the 60 economists surveyed from June 2 to 10, none expected the Bank of Japan to raise interest rates at the policy meeting on June 16-17. Specifically, among the 58 economists surveyed, 30 (52%) expect borrowing costs to remain at 0.50% by the end of the year, which sharply contrasts with the May survey results—at that time, 52% of respondents expected rates to rise to 0.75% by the end of 2025. The interest rate futures market currently only prices in about a 17 basis point increase by the Bank of Japan before the end of the year. The survey shows that among 51 respondents, 40 (over three-quarters) now expect at least one 25 basis point rate hike by the end of March next year. Among the 35 economists who clearly predicted the month of the next rate hike, 37% chose January 2025, 23% chose October this year, and 9% chose March 2025. The Bank of Japan exited its massive stimulus program in March last year, raised short-term rates to 0.25% in July, and again to 0.50% in January this year. Slightly more than half (17) of the 31 respondents believe that the Bank of Japan will slow down the reduction of Japanese government bond purchases from the current approximately 4 trillion yen per quarter starting in April next year. These respondents predict a quarterly reduction range of 2 trillion to 3.7 trillion yen. Although the Bank of Japan still holds about half of the outstanding Japanese government bonds, it began to reduce its massive bond purchase scale last year in an effort to free the economy from decades of strong stimulus. Among 28 economists, 21 (75%) expect the government to cut the issuance of ultra-long-term Japanese government bonds, while the rest believe the issuance will remain unchanged. Due to declining demand from traditional buyers such as life insurance companies and concerns over rising debt levels, the yield on ultra-long-term Japanese government bonds rose to a historic high last month. Media reports indicate that the government is considering repurchasing some ultra-long-term bonds issued during the low-interest rate period based on plans to cut the issuance of ultra-long-term Japanese government bonds Seventeen respondents believe that the issuance of 30-year Japanese government bonds will decrease, 16 chose 40-year bonds, and 10 chose 20-year bonds (respondents could select multiple options). Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, pointed out: "Due to the continued weak auction results, the Ministry of Finance is under immense pressure to reduce the issuance of ultra-long-term Japanese government bonds starting in July."