Reuters poll sees Bank of Japan raising rates to 1.25% by year-end

Japan’s central bank is closing in on another rate hike, and the move could ripple far beyond Tokyo. In a poll of 70 economists taken June 2 to June 8, 66 expected the Bank of Japan to raise its policy rate to 1.0% by the end of June, while more than three-quarters projected a further increase to 1.25% in the fourth quarter.

The BOJ’s next policy meeting is set for June 15 and 16, and the central bank has said it will keep the uncollateralized overnight call rate around 0.75% until any change is made. The case for tightening gained force after Governor Kazuo Ueda’s June 3 speech in Tokyo, where he discussed economic activity, prices and monetary policy, reinforcing market expectations that the era of ultra-loose policy is ending. Ueda also said the BOJ must weigh the pros and cons of raising rates if inflationary risks outweigh downside risks to the economy.

The shift matters because Japan is not just adjusting domestic borrowing costs. Higher Japanese rates would make yen assets more attractive, potentially drawing money back from overseas holdings and strengthening the currency. That is where the global spillover begins: if Japanese investors reduce purchases of U.S. Treasurys or bring funds home, Treasury prices could come under pressure and yields could rise, feeding into higher borrowing costs for the U.S. government, companies and households. The yen has been hovering near 160 per dollar, a level analysts see as vulnerable to intervention, adding another layer of tension for global currency markets.

Officials in Tokyo have already signaled they are prepared to act if exchange-rate moves become disorderly. Finance Minister Satsuki Katayama said on June 5 that Japan was ready to respond at any time in foreign exchange and reserved the right to take decisive action against excessive volatility. Reuters also reported on June 9 that policymakers were still warning they could act decisively against excessive yen falls while staying vigilant about rising bond yields.

Inflation and growth data are pulling policy in opposite directions, but the pressure to tighten has grown. The BOJ’s April 2026 Outlook Report projected lower real GDP growth for fiscal 2026 and significantly higher CPI inflation, driven by higher crude oil prices. CNBC reported that the BOJ cut its fiscal 2026 growth forecast to 0.5% from 1.0% and lifted its core inflation outlook to 2.8% from 1.9%. The April meeting left rates unchanged, but the 6-3 split vote, with two members calling for a hike to 1.0%, showed how quickly the policy debate had already turned.