According to a CNBC survey, it is predicted that the Bank of Japan will increase interest rates this week.

• It is predicted that the Bank of Japan will increase its benchmark interest rate by 25 basis points this week.
• Since 2008, the BOJ's key rate has been at 0.5%, and a hike will increase it to this level.
• According to public comments by Governor Kazuo Ueda and a speech by Deputy Governor Ryozo Himino to business leaders last week, economists believe that the BOJ is open to raising interest rates.

According to a survey of economists polled by CNBC, it is predicted that the Bank of Japan will increase its benchmark interest rate by 25 basis points this week.

Since 2008, the BOJ's key rate has been at 0.5%, and a hike will increase it to this level.

A survey of 19 economists found that 18 of them agreed on the prospects of a rate hike, with most citing a recent change in the tone of the BOJ leadership as the driving factor behind their expectations. The survey was conducted from January 15 to 20.

According to a report by Reuters, Governor Kazuo Ueda and Deputy Governor Ryozo Himino's public comments last week signaled the Bank of Japan's (BOJ) readiness to increase interest rates. Ueda stated on January 16 that the central bank would raise rates if the economy and prices continued to improve.

Meanwhile, Himino stated that the bank would discuss increasing rates at the upcoming meeting, stating that it would be "abnormal" for real interest rates to remain negative after Japan overcomes deflationary factors.

According to CNBC, economists polled last month indicated that headwinds that had prevented a rate hike were diminishing.

The uncertainty resulting from Donald Trump's presidency and its potential impact on financial markets and Japan's economy was also identified as a significant risk to the forecast.

The rate-hike call made by Nomura Securities was significantly influenced by the speech of Himino, as described by Uichiro Nozaki, an economist at Nomura Securities.

"Based on the comments made by Himino and Ueda, we concluded that BOJ is more confident. Regarding wage hikes, Himino stated that it is likely that wage hikes as high as in 2024 will be realized in 2025."

According to Takesh Yamaguchi, the chief Japan economist at Morgan Stanley MUFG Securities, the recent comments from the BOJ leadership suggest a more optimistic outlook on two crucial factors: wage increases in fiscal 2025 and the uncertainty surrounding the incoming U.S. administration.

The persistent weakness in the yen, which had prior to Himino's speech on Jan. 14, drifted to 6-month lows at 158.37, is another common factor cited by economists in favor of a rate hike.

According to Stefan Angrick, associate director at Moody's Analytics, the yen has weakened significantly since the BOJ decided to skip a rate hike in December.

"The combination of unexpectedly high inflation prints for consumers, producers, and importers increases the likelihood of monetary policy action in January."

The Japanese currency has strengthened 1.24% in the seven days to Tuesday, due to heightened expectations of a rate hike this week. Despite weakening between July and September, it strengthened again before weakening past 158 near the end of last year.

Nearly 88% chance of a hike in the upcoming meeting, according to LSEG data.

Economic indicators

The Bank of Japan aims to create a " virtuous cycle" of increasing prices and wages, where higher wages would supposedly lead to higher prices and consumption.

Sustainable growth in the Japanese economy is anticipated to result from a virtuous cycle, following its economic downturn in the 1990s due to the bursting of its asset bubble.

The Japanese economy is showing positive signs, as core inflation has remained above the BOJ's 2% target for 32 consecutive months, and the shunto wage negotiations in 2024 resulted in the largest increase in 33 years.

In his speech, Himino emphasized the importance of the bank closely monitoring wage increases during the 2025 fiscal year, which spans from April 2025 to March 2026.

"While every company encounters distinct obstacles, increasing wages would not be an easy task. Nevertheless, I anticipate significant wage increases in fiscal 2025, as we witnessed in fiscal 2024," he stated.

Since March 2023, household expenditure has decreased every month year on year, except for two marginal increases in April and July 2024.

The "virtuous cycle" of the BOJ could be negatively impacted if demand is low due to a weak spending figure.