Economists: The Bank of Japan is unlikely to raise interest rates next week, and may do so as early as April.

According to more than one-third of the surveyed economists, the Bank of Japan may raise the benchmark interest rate in April after maintaining its policy unchanged next week. Based on the survey conducted from March 5 to 10, all 51 economists expect the Bank of Japan, led by Governor Haruhiko Kuroda, to keep the lending cost unchanged at 0.75% after the two-day meeting next Thursday. The percentage of economists expecting a rate hike in April has increased from 17% in the previous survey two months ago to 37%, with approximately two-thirds of them believing that April is the earliest possible month for a rate hike. About 22% predict a rate hike in June, while another 29% expect it in July. In the January survey, about 48% predicted a rate hike not until July. Before the U.S. and Israel launched attacks on Iran at the end of last month, overnight index futures pricing in the market showed a 68% likelihood of a rate hike in April, after officials made a series of hawkish comments and some economic data exceeded expectations. The survey results indicated that many people believe the Bank of Japan will proceed with policy normalization as planned, despite the conflict. The escalation of the Iran war caused oil prices to soar at the beginning of this week, and although the market has since retraced, supply concerns continue to cause ongoing volatility in the energy market. Many respondents stated that while rising oil prices may weaken the economy, they may also stimulate inflation expectations that align with the current economic growth and the Bank of Japan's expectations. Ryutaro Kono, Chief Japan Economist at Banque Pictet Japan, wrote in a survey response, "If the economic outlook does not deteriorate, Kuroda is likely to reiterate the intention to raise interest rates at the post-meeting press conference. As long as the situation in the Middle East stabilizes, the baseline expectation is for a rate hike in April." Japan is almost entirely dependent on imported oil, with over 90% coming from the Middle East. Despite a continuous study of the impact of developments in the region by government officials and analysts, 53% of the respondents believe Japan is unlikely to fall into stagflation. About a quarter of respondents find it difficult to make a judgment. Half of the economists believe that the conflict in Iran has increased economic risks, reducing the likelihood of a rate hike in April; 14% of economists believe that the conflict has exacerbated inflation risks, increasing the likelihood of a rate hike. Another 30% of economists find it difficult to assess the likelihood of a rate hike. Nana Otsuki, Senior Researcher at Pictet Asset Management Japan, stated, "Although upward pressure on inflation could be a factor accelerating a rate hike, considering the potential impact of rate hikes on the economy and the government's attention to public opinion, the pace of rate hikes is more likely to have to be slowed down." In addition to the situation in the Middle East and inflation dynamics, the views of Prime Minister Sanae Takaichi are crucial to the Bank of Japan, especially considering her consistent support for monetary stimulus policies. Last month, the Takaichi government nominated two scholars advocating inflation, Toichiro Asada and Ayano Sato, as new members of the Bank of Japan's board. About 80% of economists believe these two appointments clearly indicate Takaichi's tendency to slow down the pace of rate hikes. However, analysts are divided on whether the new members can slow down the rate hike pace of the nine-member committee, with 43% of analysts believing they will, and 45% believing they will not. Asada will join the committee in April, with Sato taking over in June. Economists also point out that if Takaichi intervenes in discussions on Bank of Japan policy with the intention of slowing down the monetary normalization process, the yen may weaken. More than half of the respondents say it is difficult for the Prime Minister to stop the Bank of Japan from raising interest rates, as doing so could lead to a depreciation of the yen. On Wednesday, the yen approached the key level of 160 against the dollar, a level within the range the authorities intervened to support the yen in 2024. The weak yen has exacerbated inflation over the past few years, putting pressure on households. Tsuyoshi Ueno, Chief Economist at NLI Research Institute, said, "The appointments to the policy committee show that the Takaichi government is not seeking an early rate hike. Therefore, it is expected that the Bank of Japan will only take action after carefully accumulating enough evidence to prove the rationale for a rate hike. However, if the yen depreciates excessively, a rate hike could take place as early as April."