Daiwa Securities notes the Bank of Japan may accelerate tightening as inflation risks and AI-driven demand narrow patience for gradual moves.
The Bank of Japan is shifting focus from whether to raise rates to how quickly, as inflation pressures and AI-related demand reshape its policy outlook. Analysts highlight a move away from a narrow real interest rate gauge toward broader financial conditions, including asset prices and lending volumes, enabling faster adjustments than markets anticipate.
Recent data shows rising break-even inflation rates and a narrowing output gap, fueled by AI demand and sustained import cost pressures from a weak JPY. The BOJ’s June Summary of Opinions reflects an upside bias in economic assessments, with downside risks receding.
JGB markets face risks from the 2027 tapering halt, where fiscal motivations could steepen the long end. The JPY’s trajectory is viewed as marginally hawkish, with front-loading now a live option.