(Bloomberg) -- Most Bank of Japan watchers have kept their views on the trajectory of interest rates intact despite the historic upheaval in markets during the past few days, although they note rising risks of policy backtracking.
Some 65% of 34 economists see the policy rate rising from the current 0.25% by the end of the year, according to a Bloomberg survey conducted Tuesday. About 21% said the hike would likely occur in October, while 41% pegged December for the move. Those bets are largely in line with the consensus from a survey conducted on Aug. 1, the day after the BOJ raised its policy interest rate, and a day before the market turmoil began in earnest.
The survey results suggest economists are still broadly betting that the BOJ will follow through with its existing stance on rates, despite major ructions in financial markets. Still, the majority see risks for the central bank as it assesses the impact of historic falls in stock prices and a surge by the yen.
Some 71% of analysts see a risk that the BOJ may have to backtrack on policy, with some citing the July 31 hike as a factor spurring the yen surge against the dollar, which in turn contributed to the historic slump in Japanese stocks. Others dismissed such a causality, showing a split in economist views. While 56% said the rate hike wasn’t premature, 32% said it was.
“The market will calm down sooner or later,” said Yuichi Kodama, an economist at Meiji Yasuda Research Institute. “I don’t think it will have a significant impact on the BOJ’s rate path, but it has certainly increased the probability of risk scenarios compared with before.”
Stocks pared losses on Tuesday, with the yen giving up some of its gains against the dollar, as policymakers called for calm.
Some analysts surveyed cited political factors behind the rate hike, which came days after two senior lawmakers made unusual remarks on monetary policy.
“The July rate hike is not the main cause of the current market turmoil,” said Masamichi Adachi, an economist at UBS Securities. “But the perception among market participants that the BOJ raised the rate due to the weak yen and political pressure has made future policy management more difficult, and increased the risk of another failed policy normalization.”
The main opposition party has already called Governor Kazuo Ueda to speak in parliament to explain the BOJ’s latest policy decision. After the rate hike on July 31, Ueda said the bank will keep raising rates as long as inflation remains in line with the BOJ’s outlook, boosting bets that the pace of rate hikes would be faster. The governor hasn’t spoken publicly about the market turmoil so far.
Economists have maintained their medium to long-term rate projections. The median forecast for the end-of-year rate level was 0.5%, the same as in the previous survey. The economists also expect the terminal rate of this rate hike cycle to be 1%, unchanged from the previous poll.
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