BoJ Cautious on Risk of Underlying Inflation Above 2%

The Bank of Japan raised its policy rate by 25bps to 1.0% while signaling concern over inflation. UBS projects further hikes to a terminal rate of 1.5% and maintains a constructive outlook on Japanese equities.

Key Takeaways

• 1.The Bank of Japan raised its policy rate by 25bps to 1.0% and signaled a cautious stance on inflation.
• 2.UBS expects two additional 25bps hikes, bringing the terminal rate to 1.5% by mid-2027.
• 3.The BoJ will reduce JGB purchases, which is expected to exert 8bps of upward pressure on 10-year JGB yields.

Table of Contents

• Summary of the monetary policy meeting
• Policy rate: Gradual normalization toward 1.5%
• Quantitative tightening: Upward pressure for the JGB yield by 8bps
• Asset class implications
• Rates
• Equities

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