Bank of Japan's rate hike expectations intensify: 90% of economists bet on action in December, and interest rates may break 1% next year

【Bitu】The most closely watched market action in the past week has probably been the Bank of Japan’s moves. The economist survey results from early December are quite interesting—out of 70 people, 63 bet that the central bank will act in the next week’s meeting, raising short-term interest rates from 0.5% to 0.75%. This consensus has nearly doubled from last month, jumping from 53% to 90%, indicating that market expectations are now highly aligned.

More importantly, the forward-looking judgment: over two-thirds of respondents believe that by the end of September next year, interest rates will need to reach at least 1%. This is essentially a warning to the market—that Japan’s ultra-loose monetary policy may truly be coming to an end.

There are also signals at the political level. Prime Minister Sanae Takashi’s new government does not seem to oppose this rate hike, as inflation pressures and the continued weakening of the yen compel them to tolerate the central bank tightening. Since the last move in January this year, this will be Japan’s first real interest rate increase within the year. For those holding yen-denominated assets or watching cross-border arbitrage, the chain reaction of this policy shift may just be beginning.