The US-Japan tariff agreement is finalized ahead of schedule! The expectation for the Bank of Japan to raise interest rates increases: 80% of economists bet on action before January next year

According to the Zhitong Finance APP, a survey conducted before U.S. President Trump announced the U.S.-Japan trade agreement shows that observers of the Bank of Japan generally expect authorities to raise the benchmark interest rate in October or January.

The survey indicates that all 56 economists predict that the policy committee led by Governor Kazuo Ueda will maintain the benchmark interest rate at 0.5% during the two-day meeting ending on July 31.

The proportion of respondents who believe the next rate hike will occur in October rose slightly from 30% to 32%, while the expectation for a January action increased from 34% to 36%. Overall, nearly 80% of respondents expect action before January next year.

October and January remain the best timing for the Bank of Japan to raise interest rates.

Trump announced that the comprehensive tariff rate on Japanese goods would be set at 15%, lower than the originally planned 25% to be implemented from August 1. The agreement was reached much earlier than analysts expected—only 12% of respondents anticipated it would be finalized before August 1.

Japanese Deputy Prime Minister Taro Aso stated that as part of the agreement, the U.S. will reduce the tariff on Japanese automobile imports from 25% to 15%.

Junya Takemoto, an economist at Sumitomo Mitsui Banking Corporation, wrote in his survey response: "If a tariff agreement is reached before August 1, a rate hike may occur in September or October as potential inflation improves. I am closely watching whether the Bank of Japan will release hawkish signals in its inflation assessment."

Deputy Governor Shinichi Uchida stated after the announcement of the agreement that it would increase the likelihood of the Bank of Japan achieving its inflation forecast, which is a key condition for further rate hikes.

With the tariff outlook becoming clearer, next week's Bank of Japan meeting will shift focus to the quarterly economic outlook report. Given that this year's inflation rate has consistently remained at 3% or above, the market generally expects the central bank to raise its price outlook and revise its assessment of the balance of risks for price growth.

Marcel Thillient, head of Asia-Pacific at Capital Economics, pointed out: "Inflation is far exceeding the Bank of Japan's May forecast. While it is necessary to raise inflation expectations for this fiscal year, the key question is whether to maintain the pessimistic forecast for fiscal 2026 and still consider the downside risks."

As Kazuo Ueda presides over policy debates, the ruling Liberal Democratic Party, led by Shigeru Ishiba, suffered a historic defeat in the Sunday Senate elections, resulting in the ruling coalition losing its majority in both houses of parliament.

No respondents believe the election results will prompt an early rate hike. About 35% think it will delay rate hikes, while a nearly equal proportion considers it a neutral factor.

A key focus for investors is the potential scale of new fiscal spending that the government may introduce— the Liberal Democratic Party has promised cash subsidies to alleviate inflation pressures on households. Several opposition parties have proposed more expensive consumption tax reduction plans for the first time, and the ruling coalition's electoral defeat makes it more susceptible to the demands of the opposition.

Analysts are divided on whether fiscal expansion will lead to an early rate hike. About 30% believe it will happen sooner, 20% think it will be delayed, while the rest consider the impact neutral or difficult to judge Mitsui Life Insurance economist Hiroaki Muto stated: "The results of the Senate elections may strengthen the momentum for fiscal expansion. From the perspective of policy coordination, the threshold for further interest rate hikes by the Bank of Japan has been raised."