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December 19, 2025
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BOJ: Measured Steps Toward Normalisation

  • A hike to 0.75% was delivered as expected, reflecting confidence in wage-led inflation momentum, though real rates remain deeply negative and uncertainty around trade policy and wage sustainability persists.
  • Future tightening hinges critically on 2026 spring wage negotiations reaching 5%+ and underlying inflation remaining firm as food-price effects wane. Some dissenting board members questioned inflation's near-term durability.
  • Real interest rates at significantly negative levels permit gradual tightening toward the estimated 1-2.5% neutral range, with markets pricing 1.0% by mid-2026. Limited runway and external risks may constrain the pace of normalisation.
December 19, 2025
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Mexico: Closing the Easing Door

  • Banxico cut by 25bp to 7%, broadly in line with expectations, but signalled a de facto pause with a more data‑dependent approach to future easing.
  • Sticky core inflation and upward‑revised forecasts for early 2026 mean additional cuts are unlikely before mid‑2026, keeping real rates above neutral for now.
  • A 4–1 split vote and fiscal/trade‑related upside risks to inflation argue for a prolonged hold in Q1 2026, limiting the scope and speed of the remaining easing cycle.

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