Is the BoJ Ahead of the Curve Rather Than Behind the Curve

The Bank of Japan is 'ahead of the curve' with its 0.75% policy rate exceeding the macro fair value of 0.15% based on weak output gap and net funding demand data. While the market now prices in a 2% terminal rate, slowing inflation and weak domestic demand suggest that aggressive rate hikes may be premature.

Key Takeaways

• 1.The BoJ's current policy rate of 0.75% is higher than its estimated macro fair value of 0.15%, suggesting it is 'ahead of the curve' rather than behind it.
• 2.Inflation is slowing, with Core-core CPI falling below the BoJ's 2% target for the first time since July 2024.
• 3.The Japanese government aims for a 'high-pressure economy' with a 2% output gap and 3% nominal GDP growth to boost household income.

Table of Contents

• Macro Research advanced tools
• Outlook and Forecasts
• Global Economics
• Leverage Analytics
• Capital Flows
• Fiscal Policies and Public Debt
• Country by Country
• Red Mount Analytics

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