The Bank of Japan could raise interest rates at three consecutive policy meetings through December, according to Nomura Securities, if the yen remains weak.
Nomura projects a quarter-point increase this month is reasonable. That would mark a sharp pivot from the BOJ's ultra-loose stance of recent years.
Bank of Japan Deputy Governor Ryozo Himino signaled the shift Thursday. He said the central bank remains alert to upside inflation risks and underscored the importance of stabilizing underlying inflation around 2 percent. Himino warned that sustained inflation above target could adversely affect the Japanese economy.
The BOJ board will scrutinize economic and price trends at its next policy meeting and debate associated risks, Himino said, signaling a data-dependent approach.
Following the tightening expectations, the yen rallied as currency traders repositioned for a more hawkish BOJ.
For fixed-income investors, three consecutive hikes would steepen the Japanese government bond yield curve. The short end—two-year and five-year JGBs—would see sharp yield increases. Longer-dated JGBs would face significant duration risk as bond values decline when rates rise.
Nomura frames this outcome as an "extreme scenario," requiring persistent yen depreciation. The immediate focus is the BOJ's next meeting, where the board's assessment of inflation and the yen's trajectory will determine whether it aligns with Nomura's forecast.
