ING’s Senior Economist Min Joo Kang argues that the Bank of Japan will keep basing rate decisions on data despite a slightly more dovish board tilt and government pressure. ING expects no early move while inflation slows, with Tokyo CPI set to decelerate, and sees a higher probability of a June rate hike than April, after wage and inflation data are confirmed.

Board tilt but path unchanged

"Despite ongoing concerns regarding the Bank of Japan's independence from government influence, the BoJ unanimously decided to raise rates in December. The Board consists of nine members: the governor, two deputy governors, and six others."

"Two new academic candidates with “reflationist” views were nominated by the government today to replace board members Asahi Noguchi and Junko Nakagawa, who are retiring in March and June."

"The market appears to anticipate that these two members (pending approval) – Ayano Sato, an Aoyama Gakuin University professor and Toichiro Asada, a Chuo University professor – will serve as strong opponents to monetary easing, thereby establishing a consistent bloc likely to dissent against any prospective rate increases."

"However, in our view, the overall dove-hawk balance on board is likely to be tilted slightly toward the dovish side but unlikely to change significantly from its current state because Noguchi is already the most dovish member and Nakagawa tends to be neutral or dovish among current board members."

"In this sense, we judge that an interest rate hike during the first half of the year, when inflation is expected to slow sharply, is unlikely."

"The Bank of Japan is expected to adjust the pace of its bond purchases for the fiscal year 2027, with an announcement likely at the April meeting."

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