A recent Reuters poll from August 21, 2025, asked economists about the Bank of Japan’s (BOJ) interest rate decisions. Most of them, about 92%, believe there will be no changes in the next policy meeting in September. Yet, 63% think the BOJ will raise rates to 0.75% in the fourth quarter of 2025, up from 54% last month. Among the 40 economists who provided a timeline, 38% expect the change in October, 18% in December, and 30% in January next year. Additionally, 22 out of 29 economists support the US-Japan trade deal. However, 21 of 31 are worried about increased fiscal pressure after the Liberal Democratic Party’s loss in the upper house elections. Currently, markets anticipate about a 17 basis point rate hike by the end of the year. The BOJ’s current leadership tends to prioritize caution, focusing on avoiding risks instead of making bold moves.

Consensus Opportunity And Pressure

Economists are increasingly agreeing on a BOJ rate hike to 0.75% by the end of the year. However, interest rate markets are only factoring in a much smaller hike of 17 basis points. This mismatch highlights a clear opportunity. Strong economic data is putting pressure on the BOJ to act. Japan’s core inflation for July 2025 remains above the BOJ’s 2% target, sitting at 2.5%. This is supported by significant wage growth, with final figures from the 2025 Shunto negotiations showing raises over 5% for the second consecutive year. These elements make it harder for the BOJ to keep its current policy. As we approach the September policy meeting, over 90% of economists expect no changes. This consensus might indicate that short-term options on Japanese government bonds or the yen could be pricing in too much risk. Traders might consider strategies that benefit from this expected stability in the coming weeks.

The Fourth Quarter Focus

The focus should turn to the fourth quarter, especially the October meeting, which is considered the most likely time for a rate hike. With the yen currently weak, around the 158 level against the dollar, a rate increase would help strengthen the currency. The difference between the market’s 17 basis point expectation and a potential 65 basis point increase to 0.75% presents a trading opportunity. However, we must remember that under Governor Ueda’s leadership, the BOJ tends to be careful. Their historic decision to end negative interest rates in March 2024 was a well-managed and small step. This history suggests that while a rate hike is indeed on the way, preparing for a single, aggressive move might not be the best strategy. Instead, be ready for a gradual tightening process. Create your live VT Markets account and start trading now.

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