BOJ set to hike interest rates in December, but decision on knife-edge: Reuters poll

A Reuters poll conducted Nov. 11-18 found a slim majority (53%, 43 of 81 economists) expects the Bank of Japan to lift short-term rates to 0.75% from 0.50% at its Dec. 18-19 meeting, with all forecasters who provided projections seeing rates at least at 0.75% by end-March and a median end-2026 rate of 1.00%; the BOJ last raised rates by 25 basis points in January. The yen’s recent tumble to a 10-month low versus the dollar and an all-time low versus the euro is strengthening the case for tightening via concern about imported inflation and raises the risk of FX intervention, even as new Prime Minister Sanae Takaichi urges coordination with government reflation efforts. Economists say the timing of further hikes hinges on wage negotiation momentum—most don’t expect next year’s pay increases to exceed this year’s 5.25%—and while wage growth should remain elevated in 2026, softer corporate profits could moderate wage gains and limit the pace of further tightening.

Analysis

A Reuters poll conducted Nov. 11-18 shows a slim majority—53% (43 of 81 economists)—expect the Bank of Japan to lift short-term rates to 0.75% from 0.50% at its Dec. 18-19 meeting, with all 69 forecasters who provided projections seeing rates at least 0.75% by end-March; the BOJ last raised rates by 25 basis points in January and the median end-2026 rate remains 1.00%. The yen has tumbled to a 10-month low versus the dollar and its weakest level ever versus the euro, a move economists say is strengthening the case for tightening because of upside risks to prices via imported inflation and raising the prospect of FX intervention. Prime Minister Sanae Takaichi is urging BOJ cooperation with reflationary policy, but poll respondents flag wage-negotiation momentum as the key trigger; 81% of respondents to an extra question do not expect next year’s pay increases to exceed this year’s 5.25%, and the median expected pay rise among 28 forecasters was 4.9%. Analysts in the poll note that while elevated wages and corporate profits support tighter policy, softer-than-expected manufacturing profits could temper earnings and slow the pace of wage growth in 2026, producing a mixed outlook for Japanese assets and a modest market impact (market_impact_score 0.35, tone hawkish).

Key Decisions for Investors

• Reduce duration exposure to Japanese government bonds and other rate-sensitive fixed-income instruments given the increased probability of BOJ tightening and upward pressure on short-term yields
• Implement or increase hedges against further JPY depreciation—use staged FX hedges or options and monitor for potential sudden FX intervention that could trigger sharp reversals
• Rotate equity exposure toward firms and sectors that benefit from a weaker yen and resilient domestic demand, and underweight or hedge manufacturing names where the poll highlights risks of softer profits and a moderation in wage-driven margin support