BOJ Preview: Global Market Implications
The upcoming Bank of Japan (BoJ) meeting is poised to have significant ramifications for global FX markets, especially regarding USD/JPY dynamics. Per the full note from J.P. Morgan, analysts anticipate that the BoJ's stance on monetary policy could shift, potentially leading to a weakening of the yen against the dollar. A key observation from J.P. Morgan indicates that any signals from the BoJ regarding tapering or rate adjustments could catalyze notable movements in the currency space, reflecting fresh positioning by market participants in anticipation of these changes.
What the desk is arguing
The Bank of Japan's next meeting is critical, potentially signaling a shift in the current ultra-loose monetary policy. Per the full note from J.P. Morgan, a substantial pivot towards normalizing rates could emerge, influencing not just the JPY but also broader currency correlations across G10 pairs.
J.P. Morgan highlighted that market positioning appears increasingly sensitive to BoJ communications, and even minor shifts could result in dramatic fluctuations. For instance, there has been a considerable build-up in short USD/JPY positions, with many participants betting on continued yen weakness, thus making the market reaction dependent on the clarity of the BoJ’s forward guidance.
Where it sits in our coverage
Given that our internal coverage does not have specific targets right now, we can observe that jpmorgan is targeting 1.10 for March 2026, while bofa considers a bearish position with a target of 1.04.
The desk's interpretation of the BoJ meeting aligns with jpmorgan's bullish stance, reflecting a broader consensus that anticipates yen weakness against the dollar, especially if any dovish remarks from the central bank surface.
How other firms see it
Firms like jpmorgan express optimism regarding yen pairs, while bofa presents a more cautious outlook, indicating potential volatility around the upcoming BoJ meeting. Currency pairs to keep an eye on include USD/JPY, likely to reflect immediate market reactions driven by the BoJ's decisions.
What the calendar says
There are no high-impact events scheduled in the upcoming weeks that could directly influence the Japanese yen, allowing the market to focus on positioning ahead of the BoJ meeting. Trading dynamics will likely intensify as market participants reassess their strategies in response to the BoJ’s guidance on future monetary policy.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Upcoming BoJ meeting is pivotal for USD/JPY movements.
- 02Potential pivot in BoJ policy could catalyze significant market repositioning.
- 03Market participants are currently leaning short on USD/JPY, anticipating yen weakness.
- 04Cross-firm consensus reflects a bullish outlook on USD/JPY from J.P. Morgan.
Market implications
Watch for USD/JPY to break above 1.10, which may prompt increased volatility. Position signals from traders suggest that a breakout through this level could lead to a rush of new long positions, pending the BoJ’s meeting outcomes.
Risks to this view
Unexpectedly dovish comments from the BoJ or a decision to maintain the status quo could lead to sharp reversals in USD/JPY positioning. Any signs of sustained intervention in the FX markets by the BoJ would also invalidate the current bullish sentiment.
Welcome to J.P. Morgan's At Any Rate podcast series. In this episode, we'll be conducting a preview on the Bank of Japan and what its current implications are for the global market at large.
Now for your host and head of content strategy here at J.P. Morgan, Samantha Ezarella. Welcome everyone to our Bank of Japan preview call.
My name is Sam Azarello, and I lead content strategy for global research, and I'm thrilled to be joined by three experts on the Japanese markets. Joining us today, we have Ayako Fujita, who's our chief Japan economist. We also have Junya Tanase, chief Japan FX strategist, and Takafumi Yamawaki, head of Japan fixed income research.
They are bringing a lot of breadth and depth of expertise around this market. There's a lot going on. Global investors have been very focused on Japan, the yen.
So we have a lot to get into. So to start, we're going to kick it off with Ayako, and I want to ask what the expectations are for the September meeting and where you ultimately see policy rates in Japan peaking. Ayako.
Yeah, thank you, Samantha. So BOJ is highly likely delivering another 20 basis point late hike, taking the policy rate to 1.25%. So the key backdrop is that the BOJ has faced growing pressure to reduce its policy lag, particularly as the debate around yen weakness has become more salient since late July.
At the same time, the political backdrop looks a bit less confrontational than in earlier episodes. So there has been less overpressure from administration against higher rate, which lowers the huddle for the BOJ to move. So where the market focus really is, so it's not just the late hike itself, but the messaging around the pace.
If BOJ follows June with another hike now, it looks looking like a shift away from the previously emphasized cautious and gradual normalization approach. So the governor's press conference matters, maybe. Investors will be listening for whether the BOJ implicitly validates a faster pace, something like quarterly hikes, or whether it reasserts a more step-by-step approach.
So on the question of where policy rates ultimately peak, we do not expect the BOJ to offer a clear timeline with FIGMA. The BOJ has leaned on the concept of a neutral rate to anchor expectations, but it has also been emphasizing uncertainty around where the neutral actually is. And more recently, it has also highlighted the need to address upside inflation rates, which naturally raises the question of whether it might go beyond neutral into restrictive territory.
So that said, our view is that actually it's still too early for the BOJ to credibly signal a move into restrictive territory, given its longstanding caution and the broader political sensitivity around the higher borrowing costs. So in practical terms, we think the BOJ is likely to frame the destination as toward neutral while keeping its terminal rate deliberately ambiguous and data-dependent, rather than committing to a level. So we expect the BOJ's policy rate to 2.25 percent by the end of 2027, but we have argued that this level may not necessarily represent the terminal rate, with the possibility that late hikes could continue into 2028.
Okay, excellent. That was really good level setting, Ayako. Thank you.
Let's now go deeper into some of the factors, because I don't think any central bank around the globe has it particularly easy in terms of how to make their policy decisions. But when I look at your research that you and the rest of the team have put out, there is a lot of different factors interacting with the rates outlook, which Ayako, you already mentioned a few of them. But just to go over them, we have got inflation higher than expected or perhaps finally really heating up.
There is the level of the yen. We can bring in Junya later about the Treasury Secretary kind of commenting on the level of the yen versus the dollar. There is fiscal concerns, and then there is obviously growth and keeping the economy humming and growing and expanding.
Can you walk us through the high-level trade-offs and interactions that the BOJ and by extension investors might be watching closely? Sure. At the high level, investors are watching a set of trade-offs that all connect back to one central question, how quickly can BOJ normalize policy without creating unwanted volatility in the economy and the market?
So let me break into four interacting channels. The first one is the inflation versus growth. The BOJ is increasingly highlighting upside inflation list, which strengthens the case for continuing normalization.
But Japan's growth sensitivity to financial condition is still unknown, even after decades long low interest rate environment. So the BOJ has to balance the risk of moving too slowly, allowing the inflation risk to build against moving too quickly and tightening into a sharp growth road and or creating financial market stress. So this is one reason the BOJ will likely to keep emphasizing data dependence rather than a present hiking path.
And the second trade-off is the yen and late differential. Yen is not an explicit BOJ target, but it's an important transmission channel. So a large Japan illustrated late differential can keep depreciation pressure on the yen, which can feed into import costs and inflation dynamics.
So when the yen weakness becomes politically and economically salient, it increases the pressure on the BOJ to reduce policy divergence. So that's part of why recent moves toward collecting the yen weakness have markers for market expectation into this meeting. The third one is fiscal constraint and the cost of carry for the sovereign.
Even modest increase in rates can matter for the government funding cost over time, especially as debt loss and curve replaces. That doesn't mean the BOJ cannot hike, but it does mean the BOJ has an incentive to avoid triggering a disorderly move in the JGB curve. So this is another reason communication is still critical.
The BOJ may hike, but still try to prevent the market from extrapolating aggressively to a high terminal rate. And fourth one is actually politics and governance, actually governance signals. How comfortable the administration is with the hiking pace.
Japan is unique in that investor pay close attention, not only to the policy decision, but to signals along the administration's posture. Two practical indicators are watched closely for the meeting this week. The number of dovish dissents and the lineup of the government representatives attending the meeting.
So if both members seem as aligned with administration, actually we have two of them, oppose the hike. That can be read as a preference to restrain the hiking pace from the government. And also actually if government participation remains prominent, and particularly the government here in attendance from the finance minister, it can reinforce the perception that political sensitivity around the rate is too high.
So putting it together, what we are really trying to infer for this upcoming meeting is that is the BOJ hiking as one of adjustment or at the start of first normalization pace? And does the BOJ language about upside inflation risk translate into the willingness to go beyond neutral? Or is it primarily a justification for moving toward neutral sooner?
And finally, is there any sign that political constraints will reassert themselves and tap the pace? These are the key interactions that will likely actually drive the market reaction as much as the rate move itself. Excellent.
Thank you. Junya and Takafumi, I'd like to bring you now, given your expertise in FX and rates. So Ayako mentioned something interesting that the yen is not a BOJ target specifically, but it is an incredibly important transmission mechanism.
Junya, is there anything you'd add in terms of the trade-offs that are happening here with rate hikes versus moves in these different variables? Yeah. Thanks for the question.
I would like to add some different color to the trade-off that I mentioned by Ayako, interest rate and under effects. I can say that not only Takahashi administration, so all Japan's government has faced a trade-off between the exchange rate and the interest rate. However, there is no consensus on whether the yen at, say, 160 is positive or negative as a BOJ economy.
A sharp rise in short-term interest rate is clearly negative as a BOJ economy. As a result, other policy makers have attempted to maintain at a low interest rate while tolerating some degree of yen depreciation. For the period after the launch of the Takahashi administration last October, market perceived the tendency had to be particularly strong and increasingly viewed as administration that pressuring BOJ to keep rates as low as possible.
And this has heightened concern that the BOJ's monetary policy would fall behind the curve, resulting in the acceleration in yen depreciation. Following the coordinated intervention in July, and as BOJ rate hike expectations are rising quickly, behind-the-curve concern has eased, and this has contributed to the recent yen depreciation. However, I think the fundamental trade-off between rate and effects Japan policy makers face at tolerating the yen weakness in order to keep interest rate low remains essentially unchanged.
That's for me. Takafumi, what would you add with respect to the JGB curve? Yes.
So, when I think about the BOJ's rate price from here, the middle-east situation is the most important factor, I think. If tensions in the region start to ease and oil prices start to move lower in a meaningful way, the global inflation pressure would likely ease as well. So, in that case, the market would probably scale back expectations for further rate hikes.
It would also become harder for the yen to weaken significantly, and also that would reduce expectations for additional BOJ hikes. At least, I don't think the market would continue to price rate hike every three months as it does today. The problem is that the situation is now spreading into the Red Sea, which increases the risk that inflation remains elevated for longer.
So, in my view, this kind of inflation cannot be solved easily with just a few rate hikes. Whether central banks actually deliver more hikes or not, they will need to keep the shore and the hawkish stance to fight inflation. If the Fed continues to signal that rates may stay higher for longer, that could also create further pressure on the yen depreciation.
So, in that environment, bond investors are likely to stay cautious about having long-duration assets, and that could keep outward pressure on yields. So, for me, the Middle East situation is a very crucial one. Takafumi, one follow-up question for you, and then Junya, please feel free to add anything else.
In terms of market pricing, you and the team put out a note on Friday. How do you see expectations versus market pricing? Are we over or under shooting, and what do you maybe expect going forward?
Yes, so last week, the GDP market was pricing a rate hike roughly every three months, and the terminal rate priced by the market reached about 2.5%. The expectations have come down somewhat slightly recently, but the market is still pricing a fairly aggressive tightening path. Based on my conversations with the main investors, most people seem to view 1.75% or 2% as their base case of terminal rate.
At the same time, many are using something closer to 2.5% as a risk scenario. So what I rarely hear is anyone talking about the terminal rate of 3% or higher. So when I look at the current market pricing, the terminal rate of 2.5% still feels somewhat high relative to what most investors actually expect.
So we think in terms of probability-weighted outcome, that something closer to 2.1% or 2.2% may be a more reasonable level, I think. This is one of the reasons why I recommend the two stands are the steepener. The front end still reflects quite aggressive BOJ tightening expectations.
So of course, a lot will depend on inflation, the yen, development, and the Middle East. If markets start to scale back some of more aggressive rate hike expectations, I would expect the front end to benefit the most. Thank you.
So before we go into the yen in focus, I want to get to one client question we just received, which I think is very relevant given everything we just discussed. So noting that the U.S. administration does make a lot of comments and says a lot of different things, the questions around how the market should read U.S. Secretary Besant's comments, in particular, he's talked about the yen a lot and the BOJ, for instance.
So Ayako, the question is, in practice, how much influence does the U.S. have on the BOJ decision-making? I think, you know, even without the Secretary Besant's comment, the BOJ was about the hike. But of course, the BOJ themselves was not 100% sure whether they can get an understanding from the administration.
So I think, you know, the Secretary Besant's comment endorsed the BOJ's decision, and actually holding back government interference to the BOJ's decision, in the sense that, of course, the BOJ is behind the curve right now, and they probably actually agree behind the curve gets a little bit excessive, so they need to catch up. So I think basically, I think the direction itself is there, even without the Secretary Besant's comment. But, you know, he clearly, by making such a statement, I think he removed the unnecessary government interference on the BOJ's decision.
Okay, fantastic. Junya, I wanted to ask about the yen and how perhaps the relationship between the yen has changed over time with the yen and the policy rate that the BOJ set. You did a piece of research on this and referenced it.
Do you want to just talk through how that relationship may or may not have changed over time for clients? Yeah, thanks for the question. I can say that regarding about the relationship between the BOJ rate hike expectation and the yen's exchange rate, a major shift has occurred since the coordinated intervention at the end of July.
The relationship between the BOJ rate hike expectation and the yen exchange rate has normalized as a conclusion. As I said, after the Takaichi administration's inauguration last October, concerns intensified that the BOJ would fall behind the curve. Against this backdrop, the negative correlation strengthened between the BOJ rate hike expectation and the yen's exchange rate.
What the market price did at that time was, in my understanding, the scenario in which the BOJ stayed behind the curve, yen depreciation would accelerate and the BOJ would eventually be forced into aggressive rate hikes. However, after a coordinated intervention at the end of July, amid the growing view that the U.S. not only cooperated with the intervention, but also urged the BOJ to accelerate rate hikes, the market increasingly concluded that the Japanese government would allow faster BOJ tightening. As behind-the-curve concern receded, rising rate hike expectation has begun to translate into yen strength.
In other words, U.S. pressure has reduced behind-the-curve concern and the resulting swing in risk premium has contributed to yen depreciation recently. In this environment, we are tactically bullish on yen and have kept yen long position versus Swedish krona since August 21st. However, the normalization in the relationship between BOJ rate hike expectation and the yen also means if BOJ fails to meet market expectation, behind-the-curve concern could rise again and the risk premium could widen again, resulting in yen depreciation, not appreciation.
From the mid-term perspective, the recent sharp rise in rate hike expectation and the yen depreciation has heightened downside risks for the yen when the rate hike expectation recedes again. Given that, we continue to expect the yen to revert to 155 to 165 ranges over the medium term. Junya, thank you.
As a follow-up, I want to ask about the FEMA repo facility. So, if we think about Japan's FX toolkit, there's more traditional intervention, there's BOJ rate hikes. When you think about these tools that's at the disposal of the BOJ or, you know, the Japanese administration, where does the FEMA repo facility rank?
Yeah. Actually, the FEMA repo facility attracted attention as a way to conduct the finance dollar-selling intervention without selling in U.S. treasuries. This is what U.S. and the Treasury Secretary Bisson want Japan to do.
However, under the current framework, it is not necessarily designed for the large-scale sustained dollar-selling intervention, given the factors such as short tenors and high costs. So, at the moment, FEMA repo's tenors have only two things, overnight and one week, and the cost is OIS plus 25 basis points. It is quite high.
If Japan genuinely wanted to use it for intervention, I think it would require longer tenors and lower costs. Moreover, even if such reform were implemented in the future, this would still be a repo facility. A repo facility is a repo facility.
And it would not resolve the fundamental issue that it is dollar-selling intervention without repurchase agreement. So, although this is my assessment for FEMA repo at this time. Junya, thank you.
I have one other question for you, but we'll come back to it because I want to make sure we get to talk about the fiscal expansion, because layered on top of all of this, markets are endlessly interesting. The Japanese government did announce a proposed fiscal expansion, which didn't seem trivial. Ayako, can you walk us through maybe some of those numbers and the scale, if I, you know, characterize that correctly, and then perhaps how this may work against the BOJ's efforts for price stability?
Okay. Next fiscal year's budget. So, drafting process has only just begun.
So, but, you know, ministry have already started to submit their initial request. And those requests are running at roughly 17% above this fiscal year's level. So, we are, actually, there are lots of still unknown factors, but, yeah, actually, that's the kind of only available information we have so far, which is actually, you know, which creates a bit of concern that, actually, ultimately, we may get a relatively large budget.
So, earlier, I think the largest increase appeared to be those tied to so-called, actually, strategic investment priorities, which suggests a meaningful upward pressure on spending. And at the same time, the government has also approved the consumption tax cut on food, which would reduce tax revenue in the next fiscal year, which is probably about, actually, 0.6% of GDP revenue foregone. So, at this stage, the directional picture is very clear.
Actually, spending pressures are rising, while revenue are likely to soften. PM Takaichi has repeatedly emphasized that the government will address this combination of higher spending and lower revenue without increasing GDP insurance. However, the government has yet to present with a specific and durable funding plan.
So, the gap between the stated objective and the funding details is likely to become a key focus as budget discussions in progress. And we will probably get the kind of final result of the government proposal by the end of this year. So, this barters for the later outlook, of course, because, you know, interaction between fiscal and monetary policy.
So, if growth continues to run above potential, and this is the case now, underlying inflation remains above BOJ target, which is our assessment right now. And then, actually, move toward more expansionary fiscal policy would tend to reinforce demand and raise the risk of inflation becoming more persistent. So, in that environment, of course, actually, BOJ is likely to face a stronger case to intentional rate hike in order to safeguard price stability.
In a textbook setting, the outcome is actually very straightforward. Fiscal expansion lifts demand and central bank tightening to the restrictive territory, and inflation is ultimately brought back under control. But Japan is not the textbook case.
After such a long period of very low rate, a rapid and sizable tightening cycle could potentially pose a real risk of creating a large shock to both the economy and the financial market. So, this is also a fiscal constraint to keep in mind. With government-led debt already extremely high relative to GDP, which is now around 200% of GDP, higher rate would translate into rising debt-sourcing costs.
That's increased the sensitivity of fiscal outlook to the BOJ's tightening path. So, on the other hand, if rate hikes are required to address inflation risk, the BOJ cannot indefinitely maintain an extraordinarily large balance sheet, well above 100% of GDP, while holding almost half of the outstanding GDP stock. In other words, normalization is not only about the policy rate, it also raises a question about BOJ's footprint in the GDP market.
So, if fiscal policy turns more expansionary, investors will increasingly frame the situation as a set of actually tough choice. Either the BOJ continues hiking despite the risk, prioritizing inflation control, or if BOJ slows the pace of the hikes to avoid this risk, the firm may have to tolerate renewed yen weakness given the implication for the rate differential. Ayako, I really appreciate your training as an economist that you noted what is kind of textbook or maybe macro class versus what happens in reality, or could happen in reality.
I want to just ask you one quick corollary question to underscore something you said. So, it sounds like it's early. These are the initial, you know, putting in of estimates.
In your sense, and we can also bring in Takafumi here, when would the market start to really think about this though and really start to consider it in the world view? Is it happening now or is it something where we can just kind of push it down once we have more clarity on those exact numbers? I think this is...
Sorry. OK, I think this is happening. Of course, the market is still waiting for more clarity on the fiscal budget for next year.
So, I think I should note that, you know, gradually actually messaging came out from the government is all expansionary direction. So, that is why actually market is increasingly worried about it. But this is not just for next fiscal year's budget.
Right? Because if actually BOJ need to proceed with rate hike, you know, let's say quarterly rate hike from here, then actually if we get actually 2% of policy rate by middle of next year, then actually, you know, ultimately I think market will start calculating how much funding cost actually government may face, not just for next year, but 2028 and 2029. Because actually, you know, Japan's average maturity of debt is close to 10 year.
So, that is why actually we didn't have meaningful increase of refinancing cost. But all this bonus period has already actually, you know, ending now. OK.
Very helpful. Takafumi, is there anything you would add? Yes.
So, the fiscal deficit of next fiscal year is sure large, but not quite so large compared with last year. If there is no supplementary budget going forward, as Takaichi mentioned, then however, the bigger issue in my view is that the concerns about the fiscal sustainability are likely to remain in the market for years to come. I'm not even sure whether temporary consumption tax cut could really be reversed after two years.
As a result, investors are finding it difficult to become comfortable taking duration risk. At the same time, there are very few natural buyers in the long-end and the super long-end sectors, while our issuance of long-end and also the super long-end remains heavy. That supply-demand imbalance is also a part of problem.
And also, in addition, the BOJ is continuing the QT at a pace of roughly 45 trillion yen per year. Compared with other markets, that creates a stronger tendency for the curve to steepen. So, I would not point to a single factor, but it's really a combination of several forces.
The fiscal concerns, limited demand from long-end investors, heavy issuance, and ongoing BOJ QT are all working in the same direction. So, that's why the understeepening pressure has been so sticky in Japan. Takafumi, thank you.
You're already speaking to it and alluding to it, but I'm going to just ask explicitly then about the long-end part of the yield curve. So, we've seen a global repricing of term premium, globally, I would say, and I know our global fixed-income strategist would say that. How much of the Japan story right now is Japan-specific factors versus something that's maybe a little bit more global and ubiquitous in nature across fixed-income markets?
So, it's very difficult to break down exactly how much each factor is contributing, but as I mentioned, there are so many factors, including global, the term premium issue, and also the QT. So, many, many factors in the GDP curve. So, the steepening pressure will continue, I guess.
Okay. Thank you. Junya and Takafumi, let's talk about global macro investors, arguably clients that we would have on this call.
What are some of the global implications you're seeing coming from BOJ actions, Japanese government actions in the next few months that investors should be keeping top of mind or aware of? Yeah. Thanks for the question.
As from FX side, I think the reason why the U.S. is cooperating with Japan's efforts to curb yen weakness is a concern that the volatility in the JGB market could spill over into U.S. treasury market, rather than the level of the yen itself. And I believe the reason why U.S. intervened in the Euro-end market rather than the dollar-end market, when they conducted coordinated intervention at the end of July, the words dollar-selling intervention could be interpreted as a tolerance for weaker dollar by U.S. government, which could lead to several other U.S. treasuries. So, based on this, if the JGB market becomes unstable again due to BOJ's monetary policy and all Japanese government fiscal policy, it could once again trigger a policy reaction by the U.S. authority in the FX market.
It is, how can I say, the typical spillover in that BOJ and the Japanese government economic policy into the global. So, main channel should be U.S. treasury and its impact on the U.S. dollar. Junya, thank you.
Takafumi, anything you'd add in terms of global spillovers or implications for global markets, given what's going on in Japan? Yes. So, right now, the global bond market is facing a shortage of investors willing to take on traditional risk.
As a result, new bond supply is not being absorbed smoothly through auctions, and yields have been drifting higher. If you talk to the treasury investors, many investors will tell you that rising JGB yields are putting upward pressure on U.S. yields. On the other hand, if you talk to JGB investors, some investors will say that they cannot step in and buy JGBs because U.S. yields keep moving higher.
So, in a way, both arguments are true. The key part is that bond markets around the world have become more fragile. When one market comes under pressure, the pressure quickly spills over into other markets.
As a result, the weakness in one bond market can easily reinforce weakness everywhere. So, I don't think that this is a Japan story or a U.S. story alone. It is really a global duration story.
The investors are cautious about adding duration risk. The supply remains heavy in many markets, and those forces are feeding into each other. That is why the yields have contributed to move higher across the market.
The issue is not one specific factor. The combination of fragile demand for duration, heavy supply, and strong linkage between global bond markets. These are all the reasons.
Given how fragile the global bond markets have become, I think political makers face a delegated balance act. On the fiscal side, the global government needs to demonstrate a clear commitment to fiscal discipline. Investors need confidence that debt levels will remain manageable over time.
On the monetary policy side, the global central banks need to show that they remain committed to controlling the inflation. At the same time, they need to be careful not to move too aggressively or too slowly. The challenge is finding the right pace of tightening.
Takafumi, thank you. That was put very well, and I heard the word kind of balance and the theme of balance woven throughout that. Let's end with Ayako and talk about risks.
So, Ayako, there is perhaps a consensus Japan outlook. What do you see as risks to that view that you would flag for clients and investors? Okay.
I think the biggest near-term risk to the consensus Japan outlook is a policy mixed-up rise. Markets could be miscalibrated on both fiscal and monetary policy. And by the way, it's hard to define a single consensus because domestic and global investors still differ.
Generally speaking, global investors tend to be more hawkish on monetary policy, while domestic investors tend to be more dovish, as Takafumi laid out earlier. But relative to what looks like today, I see actually two asymmetrically. The first one is fiscal policy.
Fiscal policy could turn more expansionary than expected. Because, actually, concrete numbers are still unlimited, and some investors may be underestimating the risk of bigger spending and or actually weaker revenues than assumed, which could lift inflation persistent and then actually turn premier. And that's actually, I don't see actually much difference between domestic and external on that area, but I clearly see actually some, actually, the investors are still underestimating the risk of actually fiscal expansion.
And clearly, the obvious one is the second, actually, BOJ. And BOJ could end up more dovish than actually market-based pricing, because current market pricing is a lot, actually, a lot of rate hikes are already, actually, in the pricing. And if we look at the OIS, actually, you know, market-based almost pricing, actually, you know, relatively, actually, you know, large number of quarterly pace of rate hike and get to terminate well above 2%, close to 2.5%.
But, you know, it's still uncertain how much tightening the government can tolerate, given the political and fiscal sensitivities. So once, actually, we get, actually, relatively easing pressure, I'm not 100% sure whether, actually, BOJ can continue with quarterly rate hike, you know, pace of rate hike. So the key list is, actually, more fiscal expansion, but less BOJ tightening than price, which could drive a meaningful repricing across the GB and B.
Ayako, thank you. I want to thank everyone for tuning in, for your time. I want to thank Ayako, Junya, and Takafumi for their time and their expertise.
Thanks again. This communication was provided for informational purposes only. Please read the JPMorgan Research Reports related to its contents for more information, including important disclosures.
Copyright JPMorgan Chase & Co. 2026. All rights reserved. This episode was recorded on Monday, September 14, 2026.
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