TD Securities: Japan's Recovery Paves the Way for Faster BOJ Rate Hikes

According to Jin10, TD Securities analysts said Japan's economic growth is above potential and will require faster rate hikes to prevent overheating. TD Securities said the Bank of Japan cannot risk falling behind as the economy turns, and it expects the central bank to abandon gradual tightening. It also said price pressures are accelerating and the labor market is likely to tighten further. Against this backdrop, TD Securities expects rate hikes of about 25 basis points once per quarter, rather than the Bank of Japan's usual pace of one hike every six months. The firm forecast 25-basis-point hikes next week and in December, followed by similar increases at meetings in April, July, and October 2027, lifting the policy rate to 2.25%. TD Securities said fiscal policy will be an important consideration for the Bank of Japan, and expansionary fiscal policy could bring forward rate hikes or extend the tightening cycle into 2028.