JPY: Fiscal stance points to BoJ hike – MUFG

Derek Halpenny at MUFG argues that PM Takaichi’s focus on defence, economic security and investment-led growth, alongside efforts to move away from supplementary budgets, is supportive of a gradual BoJ policy normalisation. With the FY2026 budget likely to be passed, MUFG sees a high probability of a BoJ rate hike at the 28 April meeting.

Takaichi agenda underpins Yen-supportive shift

"We may well have seen our last supplementary budget in December and moving toward a more investment-led fiscal policy approach would certainly be more accepted by JGB investors. Importantly, PM Takaichi called for the early enactment of the FY2026 budget asking for “prompt deliberation” by the end of this fiscal year."

"We will watch this closely but having the budget passed and the full details therefore known will certainly increase the prospects of the BoJ being in a position to raise the policy rate at the April meeting."

"The policy focus laid out on Friday to keep pushing for growth and to drive investment-led fiscal spending will likely mean the BoJ will be required to tighten its monetary stance. The probability of a hike at the meeting on 28th April is currently about 70%. If the FY26 budget is passed by then and USD/JPY remains around current levels, the pressure will intensify for the BoJ to act."

"Next week may be when the government announces its picks to replace two BoJ Board members – Asahi Noguchi and Junko Nakagawa. Both on the dovish side of the spectrum and hence we could see overall balance of the Board turn a bit more hawkish. The nationwide CPI data on Friday was a little weaker than expected but we do not see that altering the prospects of an April rate hike – continued weaker prints would certainly put doubts on further hikes but not at this stage when the policy stance still requires further tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)