HSBC has revised its Bank of Japan forecast to include two rate hikes this year, now expecting a 25-basis-point increase in June rather than July and adding a second hike in December, which would bring the policy rate to 1.25% by year-end.
Analyst Frederic Neumann outlined three factors behind the call in a note to clients on Thursday.
The first is the near-term composition of the BoJ Policy Board. Board member Junko Nakagawa, one of three recent dissenters who voted for a hike at the last meeting, sees her term expire on June 29, making the June 16 meeting her last.
HSBC views her likely replacement, Ayano Sato, as more dovish. Several other board members have struck a hawkish tone in recent weeks, with Kazuyuki Masu stating that "if data do not indicate clear signs of an economic downturn, I believe it is desirable to raise rates at the earliest stage possible."
If three hawkish members join the three recent dissenters, HSBC said that would be enough to secure a 6-3 majority for a hike.
The second factor is inflation. Core CPI excluding institutional factors rose to 2.8% year-on-year last month, well above the BoJ's 2% target, while growth has remained supported by AI-related exports and fiscal cushions for households.
Third, HSBC warned that holding rates too long risks renewed yen weakness, arguing that a narrower interest-rate differential with G10 economies "should at least help stabilise the yen."
OIS markets are currently pricing in close to two 25-basis-point hikes this year, in line with HSBC's revised view.
source https://www.investing.com/news/economy-news/whats-driving-hsbcs-call-for-two-boj-hikes-this-year-4715129
