Kazuo Ueda's cautious statement may not prevent the market from betting that the Bank of Japan's interest rate hike could be significantly advanced to October

The Zhitong Finance APP noted that as U.S. President Trump announced multiple agreements, including the U.S.-Japan trade agreement, market expectations for Japan's trade outlook have become clearer, and observers of the Bank of Japan are increasingly predicting the timing of the next interest rate hike.

The latest survey shows that among 45 economists surveyed, about 42% expect the Bank of Japan to raise interest rates in October, a significant increase from the previous survey's 32%. This survey was conducted before the announcement of the U.S.-Japan trade agreement on July 22 and prior to the Bank of Japan's policy meeting. The proportion predicting a rate hike in January next year slightly decreased to one-third, while the proportion expecting a rate hike in December doubled to 11%.

Although no one considers the September meeting as the baseline scenario for a rate hike, about a quarter of respondents believe that a rate hike could be brought forward to next month in a risk scenario. Approximately 60% believe that a rate hike could start as early as October.

October has become the most popular timing for the Bank of Japan's interest rate hike.

These results indicate that even after Bank of Japan Governor Kazuo Ueda released cautious signals on Thursday, most observers still believe that the timing for a rate hike is approaching. Analysts point out that the Bank of Japan's unexpected upward revision of its inflation forecast and adjustment of risk balance assessments are evidence of its preparation for a rate hike.

Kento Minami, a senior economist at Daiwa Securities, stated, "This meeting laid the groundwork for the next rate hike," and "Considering the upward risk of food prices and the potential weakness of the yen, as long as the resilience of corporate activity is confirmed, the conditions for another rate hike this year are already in place."

In the quarterly outlook report released last Thursday, the Bank of Japan significantly raised its inflation forecast for this fiscal year from 2.2% to 2.7%. Compared to three months ago, when only downside risks were seen, the central bank now believes that the overall price risk is balanced.

However, Ueda downplayed the hawkish tendencies in the report during the post-meeting press conference, repeatedly emphasizing that while uncertainty has slightly decreased, it remains high, and stated, "The risk of lagging behind the curve in responding to inflation is very low," suggesting that there is no urgent need for a rate hike.

Naka Matsuzawa, chief strategist at Nomura Securities, believes that Ueda's press conference and the overall central bank statement remain hawkish, partly because the central bank governor denying the possibility of policy lag is a norm—policy lag is considered taboo for central banks.

The survey shows that 49% of economists view Ueda's statements as neutral, 44% as dovish, and only 5% as hawkish.

Related remarks caused the yen to fall below the psychological barrier of 150 against the dollar, reaching its lowest level since March on Friday. Given that the weakness of the yen has been a key factor driving the Bank of Japan's policy shift, analysts believe history may repeat itself About 44% of respondents believe that the yen is increasingly becoming a key factor triggering interest rate hikes, while 35% hold the opposite view, and approximately 20% find it difficult to judge.

Takeshi Yamaguchi, Chief Japan Economist at Morgan Stanley MUFG Securities, stated, "If the yen depreciates significantly, the Bank of Japan may choose to raise interest rates ahead of schedule, while emphasizing potential inflationary upward risks."

In addition to the unclear economic pressures brought by tariffs and the weak yen, many analysts point out that political uncertainty may become an obstacle to the central bank's monetary policy operations. Prime Minister Shigeru Ishiba faced historic defeat in the July 20 Senate elections, causing the ruling coalition to lose the majority in both houses of Congress, and he is under pressure to resign.

About 71% of responding economists believe that if Shigeru Ishiba is replaced by a proponent of monetary easing, the policy committee led by Ueda may not be able to raise interest rates this year, while 19% hold the opposite view.

Due to Ueda's repeated emphasis on the need for a broad and cautious analysis of data before considering interest rate hikes, some observers question whether the Bank of Japan can obtain sufficient data support for another rate hike within the year.

Shigeto Nagai, former head of the International Department of the Bank of Japan and current head of Japan at Oxford Economics, pointed out, "Even if the impact of tariffs turns out to be less than expected, it will take time to confirm the data," and "there is no possibility of another rate hike this year."