The Bank of Japan is expected to remain inactive before September to cope with tariff uncertainties, but a rate hike of 25 basis points is still anticipated before the end of the year

According to a recent survey, most economists currently expect the Bank of Japan to maintain interest rates unchanged before September to assess the impact of the U.S. tariffs. However, slightly more than half of the respondents still anticipate that the Bank of Japan will raise rates by at least 25 basis points before the end of the year. This latest survey result echoes the views of Bank of Japan policymakers, who believe that although the comprehensive tariff measures introduced by U.S. President Trump have disrupted the market, they have not completely undermined the bank's efforts to achieve a mild tightening of monetary policy.

The survey was conducted from May 7 to 13, targeting 62 economists. The results show that 59 economists (95%) expect the Bank of Japan to hold steady at the June policy meeting. However, in contrast to last month's survey, 39 out of 58 economists (67%) expect the Bank of Japan to maintain the benchmark interest rate at 0.5% before September, a proportion higher than last month's approximately 36%.

Masato Koike, a senior economist at the Sompo Institute Plus, stated, "The Bank of Japan cannot raise interest rates temporarily to assess the impact of the Trump administration's tariff policy."

The survey indicates that 52% of respondents expect the Bank of Japan to raise rates by at least 25 basis points by the end of this year. The median forecast for the benchmark interest rate at the end of September is 0.50% (down from 0.75% in last month's survey), while the median forecast for the benchmark interest rate at the end of December remains unchanged at 0.75%. Market pricing suggests that the Bank of Japan will raise rates by nearly 19 basis points before the end of this year.

Takumi Tsunoda, a senior economist at the Bank of Japan Research Institute in Shinjuku, stated, "In the short term, the economy will slow down, and the underlying inflation rate will ease, but the virtuous cycle between wages and prices may continue." He added, "If trade negotiations between the U.S. and major countries make progress, global economic activity will begin to recover. Compared to previous forecasts, the timing of rate hikes may be delayed."

Bank of Japan Deputy Governor Shinichi Uchida stated in Congress on Tuesday that despite the uncertainty brought by U.S. tariff policies, the Bank of Japan expects wages and prices to continue to rise, so policymakers will maintain their direction for rate hikes.

Notably, among 27 respondents, 26 (96%) believe that there is no need for the Bank of Japan to cut rates, which is almost consistent with last month's survey results. In this survey, among 29 respondents, 16 (55%) expressed "strong" or "somewhat" support for the Japanese government to negotiate tariffs with the U.S., while 34% stated "neither support nor oppose." There have already been two rounds of tariff negotiations between Japan and the U.S. Ryosei Akazawa, Japan's tariff negotiation representative, previously told reporters that both sides hope to meet again in mid-May