Nomura: Economic and Inflation Alignment with BOJ Forecasts Paves the Way for Rate Hikes

According to Nomura analysts, Japan's economy and inflation being in line with the Bank of Japan's forecasts open the door for an interest rate hike next week. Kyohei Morita and Uichiro Nozaki stated that while the economic fundamentals are conducive to an interest rate increase, the BOJ might postpone tightening if it takes into account uncertainties and policy rather than just fundamentals. Sources of uncertainty include U.S. policies under the Trump administration and how markets—especially the currency—will react to a hike during the typically quiet holiday season. Additionally, considerations related to fiscal policy, such as how the hike will affect the budget, may also play a role. If the BOJ does not proceed with a rate hike due to uncertainties or fiscal policy, Nomura sees a good chance for a rate increase in January. If the BOJ believes the fundamentals are not solid enough, it may also refrain from a hike in January.