Daiwa Sees BOJ Rate Hike as Pre-emptive Move to Avoid Falling Behind Inflation Curve

Daiwa Securities has concluded that BOJ Governor Kazuo Ueda's recent speech constitutes a de facto signal of a rate hike at the June Monetary Policy Meeting, based on the language used and the precedent set in the two previous tightening cycles.

The analysis by fixed income strategist Kenji Yamamoto argues that the forthcoming move should not be read as a response to an overheating economy. Instead, it reflects the BOJ's calculation that the cost of delayed action now outweighs the cost of moving.

Ueda made clear in his speech that a failure to act gradually could later force the bank into larger, more disruptive hikes, a scenario Daiwa says the BOJ is actively trying to avoid.

The central concern is second-round inflation effects, with price pass-through accelerating faster than in previous cycles and oil prices now viewed as a channel pushing up underlying inflation rather than a transient shock.