HSBC Raises Forecast for Two Bank of Japan Rate Hikes in 2026
HSBC has updated its outlook for the Bank of Japan (BoJ), now forecasting two interest rate increases before the end of 2026. The bank expects the first 25-basis-point hike to take place in June rather than July, followed by a second increase in December, which would lift Japan’s policy rate to 1.25% by year-end.
Changes Within the BoJ Policy Board
According to HSBC analyst Frederic Neumann, one of the key reasons behind the revised forecast is the changing composition of the Bank of Japan’s Policy Board.
Board member Junko Nakagawa, one of three policymakers who supported a rate hike at the most recent meeting, will see her term expire on June 29. As a result, the June 16 policy meeting is expected to be her final participation in rate decisions.
HSBC believes her likely successor, Ayano Sato, could adopt a more dovish stance. However, several other policymakers have recently signaled support for tighter monetary policy. BoJ board member Kazuyuki Masu stated that if economic data continue to show resilience and avoid signs of a significant slowdown, interest rates should be increased as early as possible.
The brokerage noted that if three hawkish members align with the three policymakers who recently favored higher rates, a 6-3 majority could emerge in support of a June rate hike.
Inflation Remains Above Target
The second factor supporting HSBC’s forecast is persistent inflation pressure.
Japan’s core Consumer Price Index (CPI), excluding institutional influences, increased by 2.8% year-over-year last month. This remains well above the Bank of Japan’s official 2% inflation target.
At the same time, economic growth has continued to benefit from strong demand linked to artificial intelligence-related exports, while government fiscal support measures have helped cushion household spending.
Yen Stability Adds Pressure for Higher Rates
A third consideration is the Japanese yen.
HSBC argues that keeping interest rates unchanged for too long could trigger another period of yen weakness. The bank believes that reducing the interest rate gap between Japan and other major G10 economies would help stabilize the currency and support broader financial stability.
A stronger policy stance from the Bank of Japan could therefore serve not only as an inflation-control measure but also as a tool to prevent excessive depreciation of the yen.
Markets Already Pricing in Additional Tightening
Financial markets appear to share HSBC’s increasingly hawkish outlook.
Overnight Index Swap (OIS) markets are currently pricing in nearly two 25-basis-point rate hikes this year, largely aligning with HSBC’s revised expectations for the Bank of Japan’s policy path.
If inflation remains elevated and economic conditions stay resilient, investors may see further confirmation that additional monetary tightening is on the horizon.
