Bank of Japan Expected to Raise Rates to 1.0% in June, Reuters Poll Shows

The Bank of Japan (BoJ) is widely expected to raise its benchmark interest rate to 1.0% during its June 2025 monetary policy meeting, according to a recent Reuters poll of economists. The consensus forecast marks a significant step in Japan’s gradual exit from its long-standing ultra-loose monetary policy.

Poll Details and Market Expectations

The Reuters survey, conducted between May 15 and May 22, gathered projections from over 30 economists. A clear majority, more than 70% of respondents, predicted a quarter-point increase at the conclusion of the two-day meeting on June 19. This would bring the policy rate from its current 0.75% to 1.0%, a level not seen since the early 1990s. The poll reflects growing confidence among analysts that the Japanese economy is on a stable enough footing to withstand further normalization.

Drivers Behind the Expected Move

Several factors underpin this expectation. Japan’s core consumer price index has remained above the BoJ’s 2% target for over two years, driven by rising import costs and a tight labor market. Wage growth, a key condition for sustained inflation, has shown promising momentum following the annual spring labor negotiations, which delivered the largest pay increases in three decades. BoJ Governor Kazuo Ueda has repeatedly signaled that if inflation and wage data align with forecasts, further rate adjustments would be appropriate. The central bank has also been gradually reducing its massive bond-buying program, laying the groundwork for a less accommodative stance.

Implications for Markets and Borrowers

A hike to 1.0% would have immediate consequences for Japan’s financial markets. The yen, which has been under persistent pressure against the U.S. dollar, could see renewed strength. Japanese government bond yields, already at multi-year highs, would likely climb further, affecting the cost of borrowing for the government, corporations, and homeowners with variable-rate mortgages. For global investors, a higher BoJ rate may reduce the appeal of the carry trade, where they borrow cheap yen to invest in higher-yielding assets elsewhere. The Tokyo stock market could experience short-term volatility as sectors sensitive to interest rates, such as real estate and financials, adjust.

Risks and Uncertainties

While the consensus points to a June hike, the decision is not without risks. The BoJ must balance its inflation mandate against the fragility of domestic consumption, which has been sluggish. A sharp slowdown in global demand, particularly from China or the United States, could derail Japan’s export-driven recovery. Furthermore, any unexpected turbulence in global financial markets between now and the meeting could prompt the central bank to hold steady. The poll itself noted that a minority of economists—roughly 20%—expect the BoJ to wait until July or later, citing these very uncertainties.

Conclusion

The Reuters poll strongly suggests that the Bank of Japan is on the verge of a historic rate increase, signaling a definitive break from decades of unconventional monetary stimulus. The June meeting will be closely watched by investors and policymakers worldwide, as Japan’s policy normalization adds a new dimension to the global interest rate landscape. While the path forward appears clear, the BoJ retains flexibility to adjust its timing based on incoming economic data and financial conditions.

FAQs

Q1: What is the current Bank of Japan interest rate?
The current policy rate is 0.75%, following a hike from 0.50% at the BoJ’s January 2025 meeting.

Q2: Why is the BoJ raising rates now?
Sustained inflation above the 2% target, strong wage growth, and a stable economic recovery have given the BoJ confidence to normalize monetary policy after years of ultra-low rates.

Q3: How might a BoJ rate hike affect global markets?
A higher yen could reduce the profitability of the yen carry trade, potentially causing capital outflows from higher-yielding markets. It may also lead to higher Japanese government bond yields, influencing global bond markets.