The Bank of Japan is now widely expected to continue tightening monetary policy next month as inflation concerns strengthen across the Japanese economy.

According to a Reuters survey conducted between May 7 and May 14, approximately 65% of economists forecast the BOJ will raise its benchmark interest rate from 0.75% to 1.0% during its June policy meeting.

Nearly all economists surveyed expect at least one rate hike by the end of September, while median projections point toward additional tightening later this year and into 2027.

Current expectations suggest the policy rate could rise to 1.25% during the fourth quarter of 2026 and potentially reach 1.50% by the third quarter of next year.

Inflation Concerns Continue Building

The BOJ’s growing shift toward tighter policy comes as inflationary pressures continue accelerating, largely driven by surging energy prices connected to the ongoing Middle East conflict.

Japan remains highly dependent on imported energy, leaving the economy particularly vulnerable to disruptions in global oil markets and the continued instability surrounding the Strait of Hormuz.

Higher crude oil prices have sharply increased import costs, while the weaker yen has amplified inflation pressures by making foreign goods even more expensive for Japanese consumers and businesses.

Many economists now believe inflation poses a larger threat to Japan’s economy than weakening consumer demand over the next year.

BOJ Officials Signal More Hawkish Tone

Recent comments from BOJ policymakers have reinforced expectations that additional tightening could come sooner rather than later.

Board member Kazuyuki Masu stated that the central bank should move toward raising rates “at the earliest stage possible” if economic data does not show a meaningful slowdown.

Although Masu voted to keep rates unchanged during the BOJ’s April meeting, his latest comments suggest he may support a rate increase in June.

At the April meeting, three of the BOJ’s nine board members already dissented in favor of raising rates immediately to 1.0%, highlighting growing divisions within the central bank over inflation risks.

Yen Weakness Adds Pressure on Policymakers

The sharp decline in the Japanese yen has become another major factor influencing BOJ policy discussions.

Japanese authorities have reportedly spent roughly 10 trillion yen intervening in currency markets in recent weeks as the yen weakened beyond the psychologically important 160-per-dollar level.

However, many analysts argue that currency intervention alone is unlikely to stabilize the yen without tighter monetary policy support from the BOJ.

Negative real interest rates continue making the yen less attractive relative to higher-yielding global currencies, particularly the US dollar.

Economists increasingly warn that maintaining deeply negative real borrowing costs risks further weakening the yen and worsening imported inflation.

Political and Economic Risks Still Remain

Despite the growing consensus toward additional tightening, some economists caution that the BOJ may still face reasons to proceed carefully.

Japan’s domestic consumption remains relatively fragile, while global supply chain disruptions tied to geopolitical tensions could create further economic uncertainty.

Some analysts also point to Prime Minister Sanae Takaichi as a potential source of resistance to aggressive tightening because of her historically supportive stance toward loose monetary policy and fiscal stimulus.

The government is simultaneously considering additional fiscal measures to offset rising household fuel and utility costs, which could complicate the BOJ’s inflation-fighting efforts.

Japan’s Policy Shift Marks Major Transition

The expected June rate hike would represent another major step in Japan’s historic transition away from decades of ultra-loose monetary policy.

After years of deflation and near-zero interest rates, the BOJ is now attempting to balance inflation control with preserving economic growth and financial stability.

Unlike the Federal Reserve and European Central Bank, Japan’s policy rate still remains relatively low compared with current inflation levels, leaving policymakers under increasing pressure to continue normalization.

Markets will now closely watch upcoming inflation, wage growth, and economic activity data ahead of the BOJ’s June meeting as investors assess how aggressively Japan’s central bank may continue tightening policy over the coming year.