Friday, July 31, 2026, at the Bank of Japan (BOJ) Head Office in Tokyo.
Toru Hanai | Bloomberg | Getty Images
The Bank of Japan is likely to raise interest rates to 1.25% at the end of its two-day meeting on Friday amid inflationary pressures, according to a CNBC survey.
The rate hikes signal an acceleration of the tightening cycle, faster than the six-month intervals the Bank of Japan has been following since policy normalization began in March 2024. The last time the Bank of Japan raised interest rates was in June.
About 89% of respondents said they expected the Bank of Japan to raise interest rates by 25 basis points, citing rising inflation, rising wages and pressure from the U.S. government.
Japan’s headline inflation rate in July was 1.9%, the highest this year, due to increased energy costs due to the Iran war. Real wages increased by 2.4% in the same month, marking the seventh consecutive month of increases.
The United States has been vocal about Japan’s continued rate hike cycle, putting pressure on Prime Minister Sanae Takaichi, who favors monetary easing and expansionary fiscal policy.
Most recently, Treasury Secretary Scott Bessent instructed Bank of Japan Governor Kazuo Ueda to take “robust market and monetary measures” at the G20 Finance Ministers and Central Bank Governors meeting earlier this month.
The United States prefers a strong yen, but a weaker yen could encourage Japan to sell American assets, including U.S. Treasuries, to strengthen its currency. These developments could cause U.S. Treasury yields to rise further. In late July, the two countries carried out a historic joint intervention aimed at strengthening the yen.
“The Trump administration is effectively putting a check on any potential moves by the Takaichi administration to prevent the Bank of Japan from raising interest rates,” said Tohide Kiuchi, executive economist at Nomura Research Institute and former Bank of Japan policy committee member. “As a result, the Bank of Japan has a free hand to continue raising interest rates.”
Bank of Japan board members have also made hawkish statements, leaving the possibility of accelerating interest rate hikes.
The CNBC survey was conducted between September 9th and 14th among 18 economists and analysts.
Survey details
Outliers:
Jesper Coll, a specialist director at Monex Group, said he expects the Bank of Japan to raise interest rates by 50 basis points in a “one and done” move. Carlos Casanova, senior economist for Asia at UBP, said he expects the Bank of Japan to be patient for now, but believes the current situation is behind the times and expects it to eventually raise rates by 25 basis points twice every six months. “The data does not yet support a regime change,” he said, so “the outlook is not strong enough to justify an accelerated pace of rate hikes. Iran tensions and oil prices remain key risks.”
When asked which Bank of Japan board member is most likely to oppose interest rate hikes, about one-third of respondents named Toichiro Asada and Ayano Sato. Both men are seen as reflationists and were appointed by Takaichi earlier this year.
Regarding the yen, approximately 61% of respondents said they expected the exchange rate to remain between 155 and 160 yen next month.
Homing Li, senior macro strategist at Lombard Odier, said the Bank of Japan’s hawkish shift will help keep the yen strong above 160 yen. However, he said it would be “not easy” to keep the yen strong above 150 yen as government and business officials resist “inappropriate” rapid currency appreciation.
—CNBC’s Lim Hui Jie and Sri Jegarajah contributed to this report.
