According to a Bloomberg survey, one-third of economists believe that the Bank of Japan will raise interest rates in July while announcing a quantitative austerity (QT) roadmap.

According to a survey conducted on Tuesday, about 33% of 43 economists believe that the upper limit of policy interest rates will be raised from 0.1% at the Bank of Japan policy meeting that ends on July 31. Prior to this month's meeting, about a similar percentage of economists expected the Bank of Japan to raise interest rates in July. When the Bank of Japan said in June that it would not release the details of QT until July, some economists said that the possibility of raising interest rates in July had decreased because it was necessary to explain the details of QT at the same time as raising interest rates, which seemed impossible to do overnight.

Meanwhile, the proportion of people who are expected to raise interest rates in October rose to 42% from 33% previously. Ayako Fujita (Ayako Fujita), chief Japanese economist at J.P. Morgan Securities, wrote in response to the survey: “Determining the details of debt purchase cuts may not be a limiting factor for the July rate hike. The cost of delaying adjustments to excessively loose monetary policies is rising as the risk of upward inflation appears. ”

The survey results show that regardless of the outcome of the July meeting, the market will be keenly interested in this event and may fluctuate. Bank of Japan Governor Kazuo Ueda said that if the data proves necessary, it is “of course” possible to raise interest rates in July. His remarks were in line with the tone reflected in the minutes of the June 13-14 meeting, when the Board of Governors had lively discussions on the reasons for raising interest rates.

Earlier this month, the Bank of Japan said it would clearly stipulate a two-year debt reduction plan, and Ueda said the scale of the reduction would be “quite large.” The Bank of Japan will hold a meeting with market participants from July 9 to 10, at which time bond traders will look for telltale signs of the final details of their plans.

Kentaro Koyama (Kentaro Koyama), chief Japanese economist at Deutsche Securities (Deutsche Securities), said, “Even if the probability of interest rate hikes decreases due to the delay in deciding on the bond plan, the possibility of raising interest rates is still five or five. The Bank of Japan is retaining maximum options.”

According to the survey results, it is expected that the amount of debt purchases will only gradually decrease. According to analysts' median estimates, Bank of Japan observers believe that starting in August, the monthly debt purchase scale will be reduced from the current 6 trillion yen to about 5 trillion yen (31.4 billion US dollars). After two years, they expect the size of debt purchases to be reduced to 3 trillion yen.

According to the survey, one-third of people expect the pace of debt purchases to slow down every quarter, 36% say it will be once every six months, and about 17% say it will change every year.

After more than a decade of large-scale monetary easing programs, the Bank of Japan owns about half of Japan's outstanding public debt. As of last Thursday, the Bank of Japan held approximately 584 trillion yen in bonds. This sheer scale magnifies the importance of every tiny step it takes.

According to the survey, economists' median estimate is that outstanding bond holdings will drop by about 11% to 520 trillion yen within two years. This is equivalent to an average monthly reduction of approximately 2.7 trillion yen in bond holdings. This size is still only 7% below the size of Japan's economy. Mitsumaru Kumagai (Mitsumaru Kumagai), chief economist at the Daiwa Research Institute, said, “The Bank of Japan's bond holdings will decline, but the pace will be relatively slow. The bank will continue to hold a large number of bonds, and the impact of holdings reduction on bond yields will be limited. ”