1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 89
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
JGB bond yields have increased throughout the year as the government ramps up fiscal
stimulus
2.5%
4.0%
2.0%
3.5%
1.5%
3.0%
1.0%
2.5%
0.5%
Jan 2025
Mar 2025
May 2025
Jul 2025
10-yr JGB yield - LHS
Sep 2025
Nov 2025
2.0%
Jan 2026
30-yr JGB yield - RHS
Source: Ministry of Internal Affairs and Communications, Bloomberg Finance LP, Scotia Wealth Management
Monetary policy normalization has continued despite softer growth. At its December meeting,
the Bank of Japan raised the policy rate by 25bps to 0.75%, signaling confidence that underlying
inflation dynamics remain consistent with achieving the 2% price stability objective. Policymakers
acknowledged weaker near-term activity while emphasizing continued firmness in core services
inflation and wage trends. This balance points to a cautious, data-dependent path rather than a
pause. Our baseline remains for one additional 25bps hike in 2026, bringing the policy rate to
1.0% by year-end.
The BoJ has hiked its target rate to the highest in ~3 decades, with further tightening likely in
the pipeline for 2026
1.2%
0.9%
0.6%
0.3%
0.0%
-0.3%
1995
1998
2001
2004
2007
Forecast period
2010
2013
2016
2019
2022
2025
BoJ target rate
Source: Bloomberg Finance LP, Scotia Wealth Management
Balance-sheet normalization has also progressed. The BoJ is set to begin selling its ETF holdings
at a very gradual pace designed to minimize market disruption. At the current planned rate, the
process would take decades, underscoring that the signal of normalization matters more than
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