A Nomura Securities strategist outlined the medium- to long-term scenarios and key factors concerning the impact of higher crude oil prices on Japan’s economy and equities following the BOJ policy meeting. The meeting indicated that the policy rate was expected to remain unchanged at around 0.75%, while noting the need to monitor the impact of higher oil prices on the inflation outlook.
At its policy meeting, the BOJ indicated that it would keep the policy rate unchanged at around 0.75%. At the press conference following the meeting, Governor Ueda (植田) did not communicate in a way that identified the timing of the next rate hike. Board Member Takada Hajime (高田 創) proposed a rate hike, but the proposal was rejected by a majority vote. The BOJ maintained its view that the economy was “recovering moderately, although some weakness can be seen in parts of it,” and continued to project inflation at around 2% in the second half of fiscal 2026 through fiscal 2027.
The BOJ explained that a sharp surge in crude oil prices would pose both upside and downside risks to underlying inflation. While higher oil prices could worsen the terms of trade and weigh on economic activity, they could also push up longer-term inflation expectations. It was also indicated that, as of the policy meeting, views were divided, although many tended to place greater weight on the upside risks.
Nomura Securities’ scenarios were organized around rate hikes in June and December 2026 and June 2027 as the base case, and hikes in April and October 2026 and April and October 2027 as the risk scenario. Nomura maintained its view that a June rate hike would be more natural from a fundamentals perspective. At the same time, it said that the likelihood of an April hike could increase if higher crude oil prices combine with a weaker yen and strengthen the assessment that underlying inflation is building.
Key factors for assessing Japanese equities ahead of the April meeting include the impact of higher crude oil prices, movements in the yen, the market reaction after the policy meeting and the outlook for the earnings season. Attention will also focus on the impact of crude oil futures on Nikkei 225 futures and the relative performance of export-oriented and domestic-demand stocks during periods of yen-buying intervention.