Head of Japan Economics on BOJ Decision (with Shery Ahn)

BOJ will hike to 1% (98% priced in). Underlying inflation still at 2.8%. Focus is on Deputy Governor Uchida's communications about path forward. Hard to deliver hawkish surprise as markets already pricing in further hikes. JGB balance sheet will continue shrinking regardless of taper pause due to redemptions. Yen weakness driven by risk appetite and carry trade, not just BOJ policy.

Yields up , medium term, interviewee explicit

explicit

NDX

RUT cautious up

Oil

Metals

USD

Bank of America 8.5
Investment Bank $3040.00B
Izumi Devalier 9.0

Head of Japan Economics on BOJ Decision (with Shery Ahn)

rut

Net-net positive for markets. Reduces downside risks for Japan economy. For corporates (importers), pressure from input cost rises less worrying.

yields

BOJ used to be dominant buyer, now steadily withdrawing. Requires different buyers to step up, clearing price will be higher meaning higher yields.

14 calls

+0

no reliable edge (random outcomes)

3/20/2026 4:47:05 PM	medium term cautious down	21 days later	-0.85%	+0.43%
3/19/2026 9:36:59 PM	medium term cautious down	20 days later	-2.23%	+1.12%
2/17/2026 12:42:30 PM	short term cautious down	5 days later	-1.23%	+0.61%
12/5/2025 12:40:03 PM	medium term cautious down	21 days later	-1.34%	+0.67%
11/13/2025 8:45:37 PM	medium term cautious down	20 days later	-0.96%	+0.48%
10/29/2025 1:10:31 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/15/2025 6:53:52 PM	medium term cautious down	20 days later	+4.55%	-2.28%
9/18/2025 10:17:17 AM	short term cautious down	5 days later	+0.19%	-0.10%
9/17/2025 6:36:22 PM	short term cautious up	5 days later	+0.39%	+0.19%
9/17/2025 4:38:45 PM	medium term cautious down	20 days later	+0.61%	-0.30%
9/5/2025 10:40:41 PM	medium term cautious down	21 days later	+2.35%	-1.17%
9/3/2025 5:31:38 PM	medium term sharp down	20 days later	-0.69%	+1.04%
8/26/2025 11:54:24 PM	short term cautious down	6 days later	+0.92%	-0.46%
8/14/2025 9:14:07 PM	short term cautious down	5 days later	-0.74%	+0.37%

Show all 14 yields results

Asks about BOJ rate hike expectation and why they would do it now.

Shery Ahn
Izumi Devalier

Hike to 1% is 98% priced in. Headline inflation falling partly on government subsidies, but BOJ's underlying measure excluding distortions still at 2.8%. Inflation pressures still very strong. BOJ is firm in conviction to continue adjusting rates higher.

Gradual pace has been one key reason for pressure on yen.
Asks about expectations from Deputy Governor Uchida.

Shery Ahn
Izumi Devalier

Focus is on communications about path forward. For markets to move, we would need commitment that BOJ is leaning towards faster hiking pace. That kind of hawkish surprise will be very hard to deliver. Markets already pricing in second hike this year at 55% by October.

Hard for them to commit. They'll leave path open and hint at considering rate hike in autumn.
Asks if weaker yen is inevitable given how much is priced in.

Shery Ahn
Izumi Devalier

Our FX strategist view: underlying structural flows around yen have improved over past couple months. Reason for persistent yen weakness (outflows from households due to NISA, corporate M&A, trade deficit) are all starting to stabilize.

Yen stayed weak because very strong equity rally in Japan caused hedging-related selling, and concern among market participants that BOJ is behind the curve with some fiscal premium.
Asks if end of Iran conflict changes markets.

Shery Ahn
Izumi Devalier

Net-net positive for markets. From Japan's economy, Middle East conflict and rise in energy prices was a negative terms of trade shock. It reduces downside risks. For corporates (especially importers), pressure from input cost rises is less worrying if deal sticks.
Asks about JGB purchase plans and why important.

Shery Ahn
Izumi Devalier

BOJ had aggressive QE program they started unwinding formally in 2025. Currently reducing monthly JGB purchases by ¥200 billion per quarter. In interim review, they need to extend guidelines for another year. Based on media reports, they will pause reductions.

Key point: BOJ balance sheet will continue shrinking because there are many redemptions on massive JGB holdings. QT will continue. From flow perspective, this is at margin positive for supply-demand dynamics in JGB markets.
Asks about fiscal scenario for Japanese government.

Shery Ahn
Izumi Devalier

Lot of fiscal pressures - defense spending, AI investment. JGB net issuance increasing. BOJ used to be dominant buyer, now steadily withdrawing. Requires different buyers to step up, clearing price will be higher meaning higher yields.
Asks how subsidies have filtered through Japanese economy and households.

Shery Ahn
Izumi Devalier

Household subsidies (gasoline) have put a floor on consumption. Without them, spike in energy households saw would have been much sharper. Has helped keep economy on moderate expansion path, which is why BOJ feels confident to continue adjusting rates.
Asks how Japanese households are feeling right now.

Shery Ahn
Izumi Devalier

Consumer sentiment has fallen sharply due to energy shock. Broader concern: even though inflation year-over-year is slowing, households feel the level. Rise in price level over past five years has been very significant. Even with inflation slowing and subsidies, households feel cost of living has gotten significantly higher.

Still a lot of dissatisfaction around that.

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