ING’s Chris Turner, Head of Global Markets and Regional Head of Research for the UK and Central and Eastern Europe, and Min-Ju Kang, Chief Economist, discuss the Bank of Japan’s recent 25 basis point hike and expectations for future interest rate hikes. The report underscores the Bank of Japan’s confidence in achieving its inflation target while maintaining a cautious stance on future guidance. The analysis suggests that although further increases are expected, they are not imminent, with a potential timeline extending until 2026.
Future interest rate hikes are not yet imminent
“The BOJ opted for a widely expected 25 basis point hike and kept the door open for future increases, although Governor Kazuo Ueda’s comments were somewhat neutral on future guidance. November’s CPI matched market expectations, with inflation pressures persisting. We expect another 25 basis point hike by the BOJ, though only in the second half of next year.”
“The meeting statement shows growing confidence about sustainable inflation in several places, with comments such as ‘firms will continue to raise wages steadily next year’, ‘the risk of interruption in firms’ active wage-setting behavior is expected to be low’, and ‘the mechanism by which wages and prices rise will be moderately maintained’.
“Thanks to government energy subsidies and lower rice prices, headline inflation is likely to fall below 2% in the first half of 2026. However, core inflation, excluding fresh food and energy, is expected to slow only marginally, remaining well above 2% in turn.”
“We would prefer USD/JPY to decline next year as FX hedging costs for holders of US-JPY debt decline. Using three-month forwards, FX hedging costs have now fallen to 3.22% annually from 4.15% at the start of the year and from a peak of 6.00% in late 2023.”
(This story was corrected on December 22 at 12:04 GMT to fix a misspelling of the name of ING chief economist Min Ju Kang.)
