Nomura Securities: Japan's monetary policy is moving towards “normalization” as scheduled, and the next rate hike may be in 2027

The Zhitong Finance App notes that Nomura Securities said that the core conclusion of the Bank of Japan's latest interest rate decision can be summed up as follows: interest rate hikes have arrived as scheduled, but the policy stance remains prudently relaxed.

On Friday, the Bank of Japan's policy committee decided to raise the policy interest rate from about 0.50% to about 0.75% with a full vote of 9-0. The decision was fully in line with the market's previous mainstream expectations, and did not have an unexpected impact on investors.

The interest rate hike has significant historical significance: it is the first time in 30 years that Japan's policy interest rate has been raised to 0.75%. This move marks another solid step on the path of the Bank of Japan withdrawing from ultra-long-term monetary easing and promoting “normalization” of monetary policy. However, in stark contrast to this historic rate hike, the central bank showed extraordinary prudence and patience in its policy statement and the press conference after the meeting between Governor Ueda and the man, leaving more room for observation, rather than a clear aggressive signal.

Prior to this meeting, the market's focus had already shifted from “whether to raise interest rates” to “any hint from the central bank about neutral interest rates.” Investors hope to get clues from the central bank about whether the neutral interest rate range (currently estimated by the model is about 1.0%-2.5%) will move upward. This directly affects expectations about the extent and end of future interest rate hikes. However, the central bank has remained silent on this critical issue.

Governor Kazuo Ueda insisted on his consistent views at the press conference, stressing that due to differences in estimation models, it is difficult to accurately determine the exact position of neutral interest rates in advance. He said that policy interest rates are still far from the lower end of the estimated range, and the central bank will continue to evaluate neutral interest rates by observing the reaction of the economy and prices to changes in interest rates. This attitude certainly threw cold water on the market's fervent expectations, showing that the central bank is unwilling to be bound by an uncertain concept, and that its future decisions will rely more on actual data performance.

Based on the results of this meeting, Nomura Securities analysts maintained their existing major policy scenario forecasts: the next rate hike is expected to take place in January and July 2027; the terminal interest rate is expected to reach 1.25% in July 2027; and interest rate hikes are not expected in 2026 because the year-on-year increase in the core consumer price index (CPI) may fall below 2%.

However, Nomura also indicated that this path faces significant risks. If Sanae Takaichi's cabinet's fiscal management policies push up the economy and prices beyond expectations (leading to a rise in neutral interest rates), or if the yen depreciates beyond expectations due to various reasons (including fiscal policy), or if it is later discovered that the neutral interest rate itself is higher than current expectations, it may cause the pace of interest rate hikes to accelerate, become more frequent, or last longer.

In summary, Nomura Securities sees the Bank of Japan meeting in December as a mixed event of “hawks who act and guide doves.” The bank acknowledged the continuing risk of inflation and wage growth by raising interest rates, but it also clearly rejected the aggressive austerity line by retaining loose language and avoiding talking about neutral interest rates. This reflects that the Bank of Japan is trying to find a narrow balance between curbing inflation, maintaining economic recovery, and supporting wage growth.