Market Outlook: BOJ May Need to Raise Rates to 0.75% Next Year

Forex - Economists at MUFG Securities have argued that if the government implements a significant fiscal stimulus, the Bank of Japan may be forced to raise interest rates to 0.75% next year. In a published note, the economists stated, "Given the expansionary fiscal policy, it is likely to increase not only consumption but also inflation, considering supply-side constraints such as structural labor shortages." Expectations for a looser fiscal policy are increasing as the ruling coalition has lost its majority in the lower house. It will need support from opposition parties that advocate for tax cuts and other incentives.