Divergence in BOJ interest rate path expectations

The Bank of Japan’s earlier-than-expected rate hike earlier this year has fueled discussions about the next rate hike step and the final rate. According to the median estimate of analysts participating in a Bloomberg survey, the BOJ’s policy rate will end the year at 0.1 percent. The final rate expectation in the survey was 0.5 percent. While this estimate means that there will be no further rate hikes in 2024, there are also economists who expect the BOJ to raise interest rates to very high levels. Sony Financial Group Economist Masaaki Kanno predicts that the BOJ will end its tightening cycle at 2 percent. Itochu Research Institute Economist Atsushi Takeda, on the other hand, predicted a final rate of 2.5 percent. Economists who predict the BOJ will be hawkish state that the bank will not be able to reach its target with a real interest rate that is quite low compared to expected inflation. While February inflation is expected to be 2.9 percent, the real interest rate offered by the BOJ is -2.8 percent. The Japanese yen continues to fall after the BOJ decision, which was interpreted by the markets as a “dovish interest rate hike.” The currency fell to its lowest level against the euro since 2008. The yen has lost more than 7 percent of its value against the dollar this year.