Intelligence finance APP learned that one-third of the economists surveyed by Bloomberg predict that the Bank of Japan will take action in July and raise interest rates and announce a blueprint for quantitative tightening policy. In this survey conducted on Tuesday, about 33% of the 43 economists expected the Bank of Japan to raise the policy rate ceiling from 0.1% at the board meeting on July 31.

Figure 1

Despite a similar proportion of respondents expecting a rate hike in July in the survey earlier this month, some economists thought the likelihood of a rate hike had decreased after the Bank of Japan announced the details of its quantitative easing plan to be released in July, as announcing the details of quantitative easing and a rate hike at the same time seemed too aggressive. Meanwhile, the number of people expected to raise interest rates in October rose to 42%, up from 33% earlier.

Ms. Fujita, chief economist for Japan at JPMorgan Securities, said in the survey:"Details of the reduction in bond purchases are unlikely to be an obstacle to an increase in July. The cost of delaying adjustments to excessively loose monetary policy is increasing as inflation risks rise.

Regardless of the outcome in July, the survey results suggest that the market will be highly focused on this event and may experience fluctuations before the rate hike. BOJ Governor Haruhiko Kuroda said that if the data support it, a rate hike in July is "of course" possible, which is consistent with the tone of the records of the June 13-14 meeting, when nine members discussed the reasons for the rate hike in depth.

Earlier this month, the Bank of Japan announced a two-year plan to reduce bond purchases, with Kuroda saying the scale of the reduction would be "considerable." The Bank of Japan plans to hold a meeting with market participants on July 9-10, and bond traders are hoping to get clues about the final details of the plan.

Kenichiro Yoshida, chief Japan economist at Deutsche Securities, said:"Despite the delay in the bond program decision leading to a decline in interest rates, the possibility of a rate hike still exists. He added:"The Bank of Japan has retained maximum flexibility.

Survey results showed that bond purchasing would only gradually decline. The median estimate of analysts is that starting in August, the Bank of Japan's monthly bond purchases will be reduced from the current ¥6 trillion to about ¥5 trillion (about $31.4 billion). They expect the Bank of Japan's monthly bond purchases to be further reduced to ¥3 trillion (about $15.7 billion) two years later.

According to the survey, one-third of respondents expect the pace of bond purchases to slow every quarter, 36% expect it to slow down every six months, and about 17% expect the pace of bond purchases to adjust once a year.

The Bank of Japan has implemented a large-scale monetary easing policy for more than a decade. The policy ended in March, and half of Japan's outstanding public debt is now held by the Bank of Japan. As of last Thursday, the Bank of Japan's holdings of bonds totaled about ¥584 trillion, underscoring the importance of each policy initiative.

Figure 2

The median estimate of economists shows that the Bank of Japan's outstanding bond holdings will decrease by about 11% over the next two years, to around ¥520 trillion. This means that the average monthly bond holdings will decrease by about ¥2.7 trillion, although this amount is only 7% lower than Japan's gross domestic product.

Kodama Mitsumaru, chief economist at Daiwa Research, said:"The Bank of Japan's bond holdings will decline, but at a relatively slow pace, and banks will continue to hold a large amount of bonds. The impact of the reduction in purchases on bond yields is likely to be limited." This suggests that while the market is highly sensitive to changes in the Bank of Japan's policies, its actual impact on the market may be more moderate than expected.