BOJ could hike rates as early as March, up to 3 times in 2026, Mizuho executive says

A high-ranking executive at Mizuho Financial Group stated in a recent economic forecast that the Bank of Japan (BOJ) could implement another interest rate hike as early as March 2025 to curb inflationary pressures and normalize monetary policy. The projection, which addresses Japan's shifting financial landscape, suggests that the central bank might pursue a more aggressive tightening cycle than previously anticipated, potentially raising rates up to three times throughout the 2026 calendar year. This assessment comes as policymakers in Tokyo weigh the sustainability of wage growth against the backdrop of a weakening yen and persistent price increases. The outlook from Mizuho, one of Japan's 'megabanks,' underscores a growing consensus among domestic financial institutions that the era of ultra-loose monetary policy is definitively ending. According to the executive, the timing of the March hike is contingent on the outcome of spring wage negotiations, known as Shunto, which are expected to signal whether the economy can withstand higher borrowing costs. If these negotiations result in significant pay raises, it would provide the BOJ with the necessary evidence that a virtuous cycle between wages and prices is firmly established. Looking further ahead into 2026, the potential for three separate rate hikes would represent a significant hawkish shift for a nation that maintained negative interest rates for nearly a decade. Analysts suggest that such a trajectory would be aimed at bringing the terminal rate toward a neutral level, likely between 1% and 1.5%. However, this path remains fraught with external risks, including the volatility of the US economy and the trade policies of the incoming American administration, both of which could influence the Japanese yen’s valuation and force the BOJ to adjust its strategy to maintain economic stability.