BOJ measuredness collides with a moving market

The Bank of Japan (BOJ) held interest rates at 0.75% in January, following a 25 basis point (bp) hike in December 2025. Since March 2024, the central bank has been increasing overnight rates gradually, with hikes of 25bps roughly every six months or longer. In the absence of a sudden acceleration in inflation or inflation expectations, the BOJ’s decision to keep rates on hold is consistent with its gradual normalisation approach. However, policy has not yet reached “neutral,” and there remains internal pressure to continue withdrawing stimulus over time. This is likely to continue, given the...