BoJ Review: Inflation Forecast Revised Higher

The BoJ has kept rates unchanged at 0.75% in the January meeting with one vote dissent that is looking for another 25bps hike. The press conference from Ueda also provided little cues but reinforce "larger focus on inflation in making policy decisions". The BoJ's economic forecast has been revised, mostly higher for both CPI and GDP. Core-core CPI for 2025 has been revised higher to 3% from 2.8%, 2.2% from 2% in 2026 and 2.1% from 2% in 2027 while core CPI is unchanged in 2025/27 and 0.1% higher in 2026. GDP growth is also revised higher for 2025 to 0.9% from 0.7%, to 1% from 0.7% but revised lower to 0.8% from 1% in 2027.

Broadly speaking, the BoJ continue to see Japanese growth to be moderate and inflation target to be met. The subtle language of inflation target "more likely" to be met is just tactics for the BoJ to avoid market participants' anticipation of an imminent hike. We do see one more rate hike in H1 2026 but as Ueda emphasizing focus on inflation figure and new energy rebates expected to kick in Q1 2026, the next rate hike will likely come in late H1.

There is not much new information so far and we continue to call for 1% being terminal rate for 2026/27.