The Bank of Japan will raise its policy rate by 25 basis points at its next decision, pushing borrowing costs to the highest level in three decades, according to a CNBC survey of market participants and economists. The move reflects the BOJ's ongoing shift away from its long-standing ultra-loose monetary policy stance.
This marks another step in the central bank's gradual tightening cycle that began in March 2024. The BOJ raised rates from negative territory into positive ground for the first time in years earlier this year, signaling a structural shift in Japanese monetary policy after nearly two decades of near-zero or negative rates. Each successive 25-basis-point increment inches the policy rate closer to more normalized levels globally.
The expected rate target moves to a range that hasn't been seen since the early 1990s, a period when Japan's economy faced very different conditions. The current hike arrives amid persistent inflation pressures that have nudged above the BOJ's 2 percent target for sustained periods. Wage growth in Japan, historically weak, has strengthened in recent negotiations, giving policymakers more confidence that price increases reflect genuine demand rather than temporary supply shocks.
Market participants view this trajectory as deliberate and measured. The BOJ has signaled a patient approach to tightening, avoiding the aggressive rate-hiking pace adopted by the Federal Reserve or other developed-market central banks in 2022 and 2023. Japanese policymakers remain cautious about derailing economic growth, particularly given Japan's fragile demographics and the need to sustain inflation expectations after decades of deflation fought the central bank's previous strategies.
The rate decision carries implications beyond Japan's borders. The yen has already strengthened on expectations of higher returns for yen-denominated assets. Carry-trade dynamics, where investors borrow cheap yen to fund investments in higher-yielding foreign assets, face compression as the funding currency becomes more expensive. This unwinding pressured global equity markets and volatility indices earlier in 2024.
Domestically, higher rates increase borrowing costs for Japanese households and companies. Bank lending margins may expand, supporting financial sector profitability. However, the property market and smaller manufacturers sensitive to credit conditions could face headwinds if the BOJ's tightening continues at a steady pace.
The survey reflects consensus among mainstream economists, though some debate whether the BOJ will maintain this quarterly hiking schedule or pause to assess economic data between moves. Inflation readings, wage growth surveys, and forward guidance from BOJ officials will shape expectations for the subsequent decision.
Investors should monitor the yen (tracking JPY strength against the dollar), Japanese equities (Nikkei 225), and global carry-trade exposures as the BOJ's rate environment shifts and expectations for future tightening adjust.