BOJ now expected to keep interest rates unchanged through to year-end – survey

Key Takeaways:

• BOJ likely to keep interest rates unchanged through 2025
• Economists anticipate rate hikes by March 2026
• Potential slowdown in BOJ’s bond-buying program from April 2026
• Uncertainty over US tariffs impacts monetary policy decisions
• Growing concerns about Japan’s economic outlook and public finances

Economists Anticipate Steady Rates from BOJ Through Year-End

A recent survey indicates that the Bank of Japan (BOJ) is expected to maintain its current interest rates through the end of 2025, with no economists predicting a rate hike at the upcoming policy meeting next week. “No one expects BOJ to raise rates at policy meeting next week,” the survey reports, highlighting a consensus among experts.

Interest Rates Expected to Remain Unchanged

According to the survey, 30 out of 58 economists (52%) expect rates to stay unchanged through year-end, an increase from the previous 48%. This suggests a growing belief that the BOJ will opt for monetary stability in the face of external uncertainties.

Anticipated Rate Hikes by 2026

Looking ahead, 40 of 51 economists (78%) foresee at least one rate hike by March 2026. This expectation indicates that while the BOJ may hold rates steady in the short term, adjustments are anticipated as economic conditions evolve.

Potential Slowdown in Bond Buying

The survey also reveals that 17 of 31 economists (55%) believe the BOJ will slow down its bond-buying program starting from April 2026 onwards. The quarterly taper size estimates range from ¥200 billion to ¥370 billion, compared to the current ¥400 billion. This potential reduction reflects a shift towards tightening monetary measures.

Government Bond Issuance May Decrease

In addition to changes at the BOJ, 21 of 28 economists (75%) expect the government to trim the issuance of super-long bonds. This move could be part of a broader strategy to manage public finances and address economic concerns.

Impact of US Tariff Uncertainty

The postponement of rate hikes is largely attributed to uncertainty over US tariff policies. This external factor is “threatening the economic outlook with concerns also on Japan’s public finances,” the survey notes. The potential for new tariffs or trade barriers has made the BOJ cautious in adjusting its monetary stance.

Market Pricing Reflects Modest Expectations

Market pricing aligns with analysts’ outlook, showing approximately 15 basis points (~15 bps) of rate hikes by December this year. This modest expectation suggests that investors are not anticipating significant changes to interest rates in the immediate future.

Growing Concerns Over Economic Outlook

Economists emphasize that uncertainties over US tariffs and their impact on trade are contributing to concerns about Japan’s economic outlook. The combination of external pressures and domestic financial considerations is influencing both monetary policy and government fiscal strategies.

Conclusion

The survey highlights a cautious approach by the BOJ and the government amid global economic uncertainties. With interest rates likely to remain unchanged through 2025 and potential policy shifts on the horizon for 2026, Japan faces challenges in navigating external pressures while maintaining economic stability.