State Street Global Advisors chief fixed-income strategist Masahiko Loo said the
BOJ’s decision was unremarkable but the economic outlook represents an important
shift. The BOJ now acknowledges potential inflation near 2%, bringing its
assessment closer to reality and noting that conventional inflation measures
have been at or above target for much of the past four years. Mirroring the Fed
and ECB, the BOJ has little reason to move urgently—especially with US midterms
likely to increase FX and bond volatility—so Governor Ueda can remain
data-dependent, keep a rate-hike option at each meeting and likely defer the
next hike to around the turn of the year. Policy tilt is hawkish; State Street’s
baseline expectation for the terminal rate is about 1.75% as Japan joins the
global synchronized tightening cycle.
