Nomura Securities analyzes the Takaichi administration's policy management this summer as a key factor for the yen, noting that its stance on restraining fiscal expansion is likely to be the focus.
Nomura Securities expects the Takaichi Sanae administration to reach a major juncture in macroeconomic policy this summer. Fiscal policy events on the horizon include the Basic Policy on Economic and Fiscal Management and Reform, an interim report on a consumption tax cut, and the drafting of a supplementary budget. In monetary policy, whether the BOJ will raise interest rates could become the focus.
The USD/JPY exchange rate came under stronger yen-selling pressure in 2026, at one point reaching the 160-yen range, but views suggest that high crude oil prices and continued yen weakness as Japan remains an energy-importing country will persist. The report explains that the BOJ's and the government's messages could have a significant impact on the yen depending on how policy is managed this summer.
In the debate over the BOJ's pace of rate hikes, the market is pricing in a 25bp increase. If the hike is postponed, however, concerns that the BOJ will fall behind the curve could intensify, potentially prolonging increases in long-term bond yields and yen-selling pressure. Conversely, some analysts believe that if the BOJ signals the possibility of accelerating rate hikes, yen-selling pressure could ease.
If fiscal expansion advances, the risk of an upside surprise in inflation expectations would rise, potentially undermining stability in the bond market. The supplementary budget is expected to exceed ¥3 trillion, while a consumption tax cut on food products is expected to be either zero or around 1%. Market reactions are expected to differ depending on the debate over how the measures will be funded.