A recent survey indicates that the Bank of Japan is highly likely to raise its policy rate to 1.25% at the conclusion of its two-day meeting on Friday, driven by escalating inflationary pressures. Such a move would mark an acceleration of the tightening cycle, outpacing the six-month intervals the central bank has followed since it began policy normalization in March 2024. The BOJ's last rate increase occurred in June.

Approximately 89% of respondents in the poll expect a 25-basis-point hike, citing rising inflation, stronger wage growth, and pressure from the U.S. government. Japan's headline inflation rate climbed to 1.9% in July, its highest level this year, influenced by higher energy costs stemming from the Iran conflict. Concurrently, real wages grew by 2.4% in the same month, marking the seventh consecutive month of increases.

The United States has been vocal in advocating for Japan to continue its rate-hike cycle, challenging the preferences of Prime Minister Sanae Takaichi, who favors loose monetary policy and expansionary fiscal measures. Most recently, Treasury Secretary Bessent urged BOJ Governor Kazuo Ueda to take "decisive market and monetary actions" during the Group of Twenty finance ministers and central bank governors meeting earlier this month. Washington supports a stronger yen, as a weaker currency could prompt Japan to sell U.S. assets, including Treasuries, to shore up its own currency—a move that might further elevate U.S. bond yields. In late July, the two nations conducted a historic joint intervention to bolster the yen.

Takahide Kiuchi, executive economist at the Nomura Research Institute and a former BOJ policy board member, noted that "the Trump administration has effectively blocked any moves by the Takaichi government to prevent the BOJ from raising rates," adding that "as a result, the central bank has gained the freedom to proceed with hikes." BOJ board members have also made hawkish remarks, leaving room for a faster pace of tightening.

The survey, conducted from September 9 to 14, polled 18 economists and analysts. Some experts suggest the BOJ's actions might surprise the market. Jesper Koll, expert director at Monex Group, believes the central bank could implement a 50-basis-point hike in a "one-and-done" fashion. Carlos Casanova, senior Asia economist at Union Bancaire Privée, expects the BOJ to hold steady for now but thinks it is falling behind the curve, ultimately projecting a rhythm of two 25-basis-point increases every six months. "The data does not yet support a policy pivot," he said, so "there is not enough visibility to back a faster pace. The Iran situation and oil prices remain key risks."

When asked which BOJ board members were most likely to dissent against a hike, about one-third of respondents mentioned Toichiro Asada and Ayano Sato. Both are viewed as reflationists, appointed by Takaichi earlier this year. Regarding the yen, 61% of respondents anticipate it will trade in a 155-to-160 range over the next month. Homin Lee, senior macro strategist at Lombard Odier, said the BOJ's hawkish tilt would help keep the yen stronger than 160. However, he noted that an appreciation beyond 150 "would not be easy," as government and business officials would resist "inappropriately" rapid currency gains.