HSBC revised its Bank of Japan (BoJ) forecast to include two 25‑basis‑point rate hikes in 2026, moving the policy rate to 1.25 % by year‑end. The first hike is now expected in June (instead of July) and the second in December.
Analyst Frederic Neumann cited three drivers: (1) the upcoming change in BoJ Policy Board composition, with dissenting member Junko Nakagawa’s term ending on 29 June and a likely dovish replacement Ayano Sato; hawkish members such as Kazuyuki Masu favour early hikes, and a 6‑3 majority could be achieved if three hawkish members join three recent dissenters. (2) Inflation pressure, with core CPI (excluding institutional factors) rising to 2.8 % YoY last month, well above the BoJ’s 2 % target, while growth remains supported by AI‑related exports and fiscal cushions for households. (3) Currency considerations, warning that keeping rates low for too long could reignite yen weakness; a narrower interest‑rate differential with G10 economies should help stabilise the yen.
Over‑night indexed swap (OIS) markets are already pricing in close to two 25‑bp hikes this year, consistent with HSBC’s revised outlook.
