Remarks by Takada Hajime (高田創), a member of the Bank of Japan’s Policy Board, have fueled a growing view that the yen will appreciate and the yen interest-rate yield curve will flatten, raising the likelihood that the terminal rate will be lower the earlier rate hikes are brought forward. Shishido Tomoaki (宍戸知暁) of Nomura Securities explains the outlook.
Following the Bank of Japan’s July meeting and foreign-exchange intervention carried out with the full cooperation of the United States, expectations for yen appreciation strengthened. The yen and the yield curve were observed shifting upward in parallel, alongside movements in long-term JGB yields. Remarks by Takada Hajime (高田創), a member of the Policy Board, were received by the market as a turning point, prompting a reassessment of rate-hike expectations.
Until recently, the market had priced in 25-basis-point rate hikes every six months through around 2038. The prevailing view has now shifted toward data-dependent and flexible policy management, while the recognition that the 2% price stability target has been achieved has also been reaffirmed. Nomura Securities’ analysis indicates that the Bank of Japan’s future pace of rate hikes will remain flexible depending on domestic and overseas price and economic conditions.
Nomura Securities revised its outlook to incorporate 25-basis-point rate hikes in September 2026, January 2027 and April of the same year, taking the policy rate to 1.75%. As a result, its JGB yield forecasts for maturities longer than 2 years through 10 years were raised across the board, and it published an outlook calling for the yield curve for long- and short-term interest rates to bull-flatten in the second half of fiscal 2027.
The Bank of Japan is said to have pointed out that no settled market view exists regarding the future pace of rate hikes or the level of the terminal rate. It has also indicated that the need for rate hikes may change in response to external factors such as oil prices and developments related to AI. The decline in ultra-long-term interest rates and the rebound in the yen are thought to have been driven mainly by growing market confidence that the Bank of Japan can implement rate hikes flexibly to the extent it deems necessary.