Prospects of Bank of Japan Rate Hike Shrouded in Uncertainty

Last year, the Bank of Japan ended its decade-long massive stimulus program. In January of this year, the Bank of Japan raised interest rates to 0.5%.

However, just as the outside world thought Japan was about to enter a rate hike cycle, the impact of U.S. tariffs disrupted the Bank of Japan's plans.

In April of this year, U.S. President Trump's "reciprocal tariffs" imposed globally plunged Japan's economy into a quagmire of uncertainty. As Japan has an export-oriented economy and the U.S. is its largest export market, Trump's tariffs have a significant impact on its economy.

On the 20th of this month, the latest data released by the Japanese government showed that Japan's exports in July fell by 2.6% year-on-year, the largest decline since February 2021. Currently, Japan's monthly exports have declined for four consecutive months.

Against this backdrop, the future path of the Bank of Japan's rate hikes has also been shrouded in uncertainty. However, the Bank of Japan kept interest rates unchanged in July but raised its inflation forecast and offered a less pessimistic view of the economic outlook, which boosted market confidence and maintained expectations that the Bank of Japan would raise rates in the second half of this year.

A current analyst survey shows that nearly two-thirds of analysts expect the Bank of Japan to raise the benchmark interest rate by at least 25 basis points later this year, higher than the level more than half a month ago.