Survey shows: Over 80% of economists expect the Bank of Japan to raise rates in December, with holding steady in October becoming the consensus

Survey shows more than 80% of BOJ watchers expect the next rate hike to come in December. No one expects the BOJ to act at its meeting ending October 30. Specifically, 83% of economists expect the BOJ to raise borrowing costs from the current 1.25% at its meeting ending December 18. Just a month ago, only 35% predicted a December hike, when January of next year was the most popular timing. The latest survey also shows 67% of respondents expect the BOJ to raise rates once every three months, up from 46% in the previous survey. This suggests that after the September hike (the second in three months and the fastest pace since 1990), the market expects the BOJ to maintain the same pace of tightening. Many economists said the biggest focus of the October meeting is the BOJ's assessment of whether underlying inflation has reached its 2% target. Since setting its price stability target in 2013, the BOJ has yet to declare that this goal has been achieved. Keiji Kanda, chief economist at the Daiwa Institute of Research, wrote in the survey: "If achievement is confirmed, the future challenge will be adjusting the degree of monetary easing while firmly anchoring 2% inflation." He expects rate hikes in December and March next year. About a month ago, the BOJ raised borrowing costs to 1.25%, entering its estimated neutral rate range of 1.1% to 2.5% for the first time. This has drawn greater market attention to the terminal rate of the hiking cycle. In the latest survey, the median terminal rate forecast remains 1.75%. Some economists noted that the Sanae Takaichi government could pose an obstacle to the BOJ's rate hike path. Sanae Takaichi supports loose monetary policy to stimulate economic growth, but US Treasury Secretary Bessent recently urged Japan to abandon reflationary policies. Subsequently, Sanae Takaichi and her cabinet ministers repeatedly said they are not pursuing reflation. Based on these statements, about two-thirds of economists assess that the Sanae Takaichi government's stance on BOJ rate hikes has softened somewhat. Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said: "The Prime Minister's Office may not truly welcome further BOJ rate hikes. But for now, it seems more likely to stand aside and acquiesce to hikes, mainly out of consideration for relations with the United States." When the BOJ raised rates in September, it encountered two dissenting votes from board members Toichiro Asada and Ayano Sato, both appointed by Sanae Takaichi. This split led to a weaker yen and made the BOJ board's vote outcome a market focus. Meanwhile, Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, believes hawkish member Hajime Takata may call for consecutive rate hikes at this meeting. The survey shows that for the quarterly economic outlook report to be released alongside the policy statement in October, watchers expect the BOJ's inflation outlook to remain largely unchanged, with only a slight upward revision for the next fiscal year. Takeshi Yamaguchi, chief economist at Morgan Stanley MUFG Securities, said: "The BOJ may indicate that it believes underlying inflation has reached around 2%. We expect the BOJ to keep policy unchanged this month, but this could be a hawkish pause."