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The Path Forward: Economists Predict Further BOJ Rate Hikes in 2022

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Economists Forecast Additional BOJ Rate Hikes

Amidst a backdrop of cautious optimism, more than half of economists participating in a recent Reuters poll anticipate the Bank of Japan (BOJ) will increase interest rates further in 2022. The potential rise, projected to reach as high as 0.25%, follows the BOJ’s momentous shift away from negative interest rates and unconventional monetary policies last week. This pivotal move, marking the first rate increase in 17 years, signals a major departure from the institution’s longstanding reliance on substantial monetary stimulus.

Market Expectations and Analyst Insights

Despite these developments, the survey findings underscore a prevailing sense of prudence regarding future rate adjustments, with a key emphasis on bolstering Japan’s delicate economic recovery. Of the 35 economists surveyed, 54% anticipate another rate hike by the end of the year, with some eyeing potential increases in the short-term interest rates to 0.20% or 0.25%. Notably, several analysts, including Mari Iwashita, Daiwa Securities’ chief market economist, anticipate a rate hike around September or October.

Timing and Rate Projections

Although no economists foresee an imminent rate hike before June, the majority highlight the fourth quarter as a likely window for the next move. Projections for year-end 2022 indicate a median forecast rate of 0.20%, with some outliers forecasting adjustments in the following year. Notably, three-fourths of surveyed economists view the BOJ potentially accelerating rate hikes beyond current projections as a significant risk factor.

BOJ’s Stance and Future Plans

Despite speculations about a possible tightening cycle, BOJ Governor Kazuo Ueda emphasizes the maintenance of accommodative conditions, underlining the ongoing distance from the 2% inflation target. Additionally, half of economists predict a reduction in the central bank’s balance sheet starting in the latter half of 2023 or beyond, indicating a cautious approach to policy normalization.

Given these evolving dynamics, the future trajectory of Japan’s monetary policy remains a focal point for market observers and analysts, with implications for both domestic and global economic landscapes.

(Reporting by Satoshi Sugiyama; Polling and analysis by Devayani Sathyan, Susobhan Sarkar, and Anant Chandak; Editing by Kim Coghill)

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