Japan's Central Bank Expected to Raise Interest Rates Amid Economic Uncertainty

On April 16, a Reuters survey revealed that nearly two-thirds of economists predict Japan's central bank will increase its benchmark interest rate to 1% by the end of June. According to BlockBeats, the ongoing uncertainty from the Iran conflict has led the market to believe that a rate hike could occur either this month or in June. Economists generally anticipate that Japan's central bank will tighten its policy again this quarter, a view that has remained largely unchanged since the U.S. and Israel initiated military action against Iran on February 28. The conflict has heightened concerns over rising energy prices, renewed inflation pressures, and further weakening of the yen, reinforcing expectations for a hawkish rate hike. In a survey conducted from April 7 to 14, 46 out of 71 economists (65%) forecasted that the policy rate would rise to 1% by the end of June, up from 60% in March and 58% in February. Among the 40 economists who specified a timing, 38% chose April, while 35% opted for June. In last month's survey, the highest support was for a June rate hike at 32%, followed by July at 30%, and April at 27%. Looking beyond June, the median forecast indicates that Japan's central bank will raise borrowing costs to 1.25% in the fourth quarter, slightly earlier than previously expected. The median forecast also suggests a further 25 basis point increase to 1.50% in the third quarter of 2027, with rates remaining steady until the end of the year. However, a few institutions anticipate a rise to 1.75%.