JPMorgan Chase has moved its forecast for the Bank of Japan's next interest rate hike forward from October to September, while adding a December hike to its projections. It has also raised its year-end 2026 policy rate forecast to 1.5%. If the government's fiscal stance remains largely unchanged, JPMorgan expects further rate hikes in April, July, and December of 2027, bringing the year-end policy rate to 2.25%. The market has already largely priced in a September hike; if the Bank of Japan chooses to postpone it, it could increase market volatility. Meanwhile, JPMorgan's underlying inflation gauge has risen to the mid-2% range, and signals of fiscal expansion have reinforced concerns that the central bank is "lagging behind the curve," while the current policy rate remains relatively low compared to economic fundamentals. This suggests that Japan's monetary normalization may shift from a gradual path to a more immediate pace of interest rate hikes.
