Heteronomics Archive

December 19, 2025

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.

October 30, 2025

The BOJ held rates at 0.5% as expected, with a 7-2 vote showing continued division. A December hike is now priced at 50-55%, down from 68% pre-Takaichi.
Inflation forecasts are unchanged at 2.7% (FY25), 1.8% (FY26), with sluggish underlying price growth and downside economic risks delaying tightening.
Wage sustainability and trade policy uncertainty dominate the outlook. 2026 labour talks and corporate profit trends will determine the rate path timing.

September 19, 2025

The BOJ held rates at 0.5% with a 7-2 vote. Hawkish dissent from Takata and Tamura voting for 0.75% signals rising tightening pressure within the board.
Surprise ETF/J-REIT disposal announcement (¥330bn/¥5bn annually) marks a significant normalisation step despite external trade headwinds.
Core inflation at 2.7% remains above target. Overall, October rate hike expectations rise to 55% after the hawkish tone despite the hold decision.

July 31, 2025

The BoJ held rates steady at 0.5% while dramatically raising its fiscal 2025 inflation forecast to 2.7% from 2.2%, exceeding market expectations and signalling potential policy acceleration.
The risk assessment shifted from downside-skewed to balanced, the most hawkish change in recent quarters, though Governor Ueda's dovish press conference comments tempered near-term hike expectations.
The Japan-U.S. trade deal reduces the increased tariff rate to 15%, materially improving the economic outlook. There is now an increased probability of rate hikes by year-end despite ongoing uncertainties.