The Viewpoint: 10 questions about BoJ policy outlook

Research evidence excerpt

The Viewpoint: 10 questions about BoJ policy outlook

Idea

July 14, 2026 04:01 PM GMT

Morgan Stanley Asia LimitedMAsia Economics | Asia Pacific Chetan Ahya

Chief Asia Economist

The Viewpoint: 10 questions Chetan.Ahya@morganstanley.comMorgan Stanley MUFG Securities Co., Ltd. +852 2239-7812

Takeshi Yamaguchi

Chief Japan Economistabout BoJ policy outlook Takeshi.Yamaguchi@morganstanleymufg.com +81 3 6836-5404

Masayuki Inui

Most investors expect a faster pace of hikes to a higher terminal Economist

Masayuki.Inui@morganstanleymufg.com +81 3 6836-5407

rate, citing inflation concerns. However, we believe inflation has

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been driven by FX and supply-side issues, not demand. While the Derrick Y Kam

economy is recovering, a more measured pace of rate hikes is Asia Economist

Derrick.Kam@morganstanley.com +65 6834-8272

still needed to nurture the reflation run.

Morgan Stanley Asia Limited

Unpacking the BoJ policy debate: The BoJ policy outlook remains front and center Jonathan Cheung

Economist

in our debate with investors. We expect the BoJ to hike next in December 2026, Jonathan.Cheung@morganstanley.com +852 2848-5652

followed by another hike in June 2027, bringing the policy rate to 1.5%. This Kelly Wang

compares with the market pricing of almost 1.75% by December 2027. Moreover, we Economist

Kelly.Wang@morganstanley.com +852 3963-0891

get the impression from our conversations that many macro investors expect a

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terminal rate of 2% or higher.

Sudhanshu Agarwal

In contrast, our policy rate forecasts through this cycle have been and remain lower Sudhanshu.Agarwal@morganstanley.com +91 22 6995-4568

than what the market has been pricing in. The main reason is our belief that inflation