Fitch: Japan’s inflation may lead to further BOJ tightening
Fitch Ratings expects Japan's persistent inflation, driven by yen depreciation and wage growth, to lead to further Bank of Japan tightening, with nearly no chance of a rate cut after April 2026. Market pricing reflects minimal expectation for easing, with a rate decrease seen as highly unlikely. Fitch projects potential rate hikes of up to 50 basis points in 2026 amid inflation above the 2% target. Policy shifts would likely hinge on changes in inflation, wage data, or statements from BoJ Governor Kazuo Ueda.
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Fitch Ratings has identified Japan’s persistent inflation as a reason for further tightening by the Bank of Japan (BoJ), and the probability of a BoJ rate decrease after the April 2026 meeting sits at 0.1% YES, unchanged from a week ago. Traders have priced in virtually no chance of a rate cut, consistent with Fitch’s report on Japan’s inflationary environment. The market for a rate decrease is so thin that just $82 shifts odds by 5 percentage points, indicating no real expectation of a cut. The BoJ’s position reflects Japan’s inflation rate consistently running above its 2% target, driven by yen depreciation and wage pressures.
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