BoJ Monetary Policy Meeting Preview: Can the BoJ face the market?

Research evidence excerpt

BoJ Monetary Policy Meeting Preview: Can the BoJ face the market?

BoJ Monetary Policy Meeting Preview

24 July 2026 Citi Research

Japan Economics: Hawkish risks from

Sosuke Nakamura yen weakness

The BoJ is widely expected to leave its policy rate unchanged at this meeting. We

have long maintained a base scenario of a rate hike every six months, expecting

rate hikes in December of this year and June of next year. Our assumed terminal

rate for the current tightening cycle is 1.5%. On top of this, we have consistently

flagged as a hawkish risk the possibility of an earlier-than-anticipated hike or a

higher terminal rate, depending on the extent of yen depreciation. The USDJPY has

once again been testing its highs, and it is fair to say that hawkish risks have

increased relative to before.

On July 22 Bloomberg reported that the BoJ is open to the possibility of

accelerating the pace of rate hikes. We nonetheless continue to regard a rate hike

on a shorter timeline than once every six months as a risk scenario rather than our

base case. On prices, as highlighted in a previous report (Japan Multi-Asset - The

new pricing era: Pass-throughs fueling Japan's virtuous cycle) Japanese companies

have become increasingly aggressive in passing on costs. This is also confirmed by

the BoJ's Final Demand-Intermediate Demand (FD-ID) price index, which shows

that price pass-throughs have made further progress in recent months (Figure 1).

This represents an upside risk to inflation and is a factor supporting BoJ rate hikes.

At the April meeting when the previous Outlook Report was published, the inflation

outlook for this fiscal year was significantly revised up in response to higher oil

prices, while the growth outlook was revised down. At this meeting, with oil prices