JPY is outperforming. Bank of Japan (BOJ) policy board member Naoki Tamura argued for a faster normalization cycle, BBH FX analysts note.

BOJ expects inflation to stabilize around its 2% target in 2026

“Tamura said ‘raising short-term interest rates to at least around 1% in the latter half of fiscal 2025 is necessary to reduce upside risk to prices and achieve the price stability target in a sustainable and stable manner.’”

“Tamura is the most hawkish board member as he was the only one to vote in favor of a rate hike in December 2024. Markets continue to price-in a BOJ policy rate of 0.75% by year-end and a terminal rate of 1.00% over the next two years.”

“This seems about right as the BOJ expects inflation to stabilize around its 2% target in 2026. The limited room for a further upward adjustment to BOJ rate expectations curtails JPY upside.”