Recent forecasts suggest that the Bank of Japan is likely to postpone any increase in interest rates until the first quarter of 2026. This decision comes amid growing uncertainty related to U.S. trade policies, according to a Reuters survey conducted between June 2 and June 10. The survey results indicate that 52% of economists, or 30 out of 58 participants, expect the interest rate to remain at 0.50% by the end of this year. This contrasts with a previous survey in May, where the same percentage predicted a rise to 0.75% by the end of 2025. None of the 60 experts surveyed anticipated a rate hike during the upcoming meeting on June 16 and 17. Despite a global trend towards lowering interest rates, Bank of Japan Governor Kazuo Ueda has maintained a tight monetary policy, indicating readiness to gradually raise rates if core inflation approaches the target of 2%. Takumi Tsunoda, chief economist at the Shinkin Central Bank Research Institute, noted that improved U.S. trade negotiations could lead to a global economic recovery, paving the way for a rate increase in early 2026. The survey also showed that more than half of the participants expected the Bank of Japan to slow the pace of reducing its purchases of Japanese government bonds from the current rate of about 400 billion yen per quarter, starting next fiscal year. The bank began scaling back its massive bond-buying program last year to end decades of stimulus policies, despite holding nearly half of all outstanding Japanese government bonds. Additionally, three-quarters of the economists surveyed indicated that the Japanese government would reduce the issuance of long-term government bonds, following record-high yields last month due to declining demand. The government is considering buying back some previously issued long-term bonds with low-interest rates and plans to cut new issuances, particularly 30-year bonds. Kazutaka Maeda, an economist at the Meiji Yasuda Research Institute, stated that the Ministry of Finance faces strong pressure to reduce long-term bond issuance starting in July. It is worth noting that the Bank of Japan ended its massive stimulus program in March 2024 and raised the short-term interest rate to 0.25% in July, then to 0.50% in January. Despite these moves, the bank continues to follow a gradual and cautious approach in raising rates, influenced by both international and domestic conditions. This cautious shift reflects policymakers’ awareness of the sensitivity of Japan’s economy, especially amid global challenges posed by protectionist trade policies, slowing global demand, and domestic debt concerns.
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