The latest Reuters survey suggests the Bank of Japan (BOJ) is expected to maintain interest rates through the end of the year. Out of 58 economists surveyed, 52% anticipate no rate change, an increase from 48% previously. Moreover, 78% of 51 economists foresee at least one rate increase by March 2026.

In addition, 55% of 31 economists predict that the BOJ will reduce its bond-buying programme from April 2026. The estimated quarterly taper size ranges between ¥200 billion and ¥370 billion, down from the current ¥400 billion. Furthermore, 75% of 28 economists project a reduction in the issuance of super-long bonds by the government.

Monetary Policy Context

Concerns about a delay in rate hikes are primarily driven by uncertainties surrounding US tariff policies and Japan’s public finances. Market predictions indicate only about 15 basis points of rate increases by December this year, which aligns to some extent with analysts’ predictions.

From what has been outlined, it is clear that most analysts now expect the Bank of Japan to hold interest rates steady through to the end of December. Over half of those surveyed now anticipate no movement until next year, marking a slight strengthening in that view since the last poll. It’s a tangible shift that seems rooted in a combination of global and domestic caution—enough so that fixed income markets have been slow to price in much beyond 15 basis points of hikes in the near term.

A growing number of experts, however, do see at least one raise materialising over the longer run, particularly by March 2026. This view coexists with expectations of bond market adjustments, where over half of those responding expect reductions in asset-purchasing activity. The projected scale of this bond-buying taper, while not extreme, does tell us that quarterly operations could slim by up to ¥200 billion from current levels. At the same time, a noticeable majority also expects the government to pull back on its issuance of longer-dated securities.

What does this mean in tangible terms? There’s an underlying message about policy caution. In plain language, the central bank appears inclined to let global economic pressures play out a bit more before acting. Delays in tariff clarity from overseas and the ongoing lack of consensus on domestic fiscal conditions are holding things back. These concerns are driving a wait-and-see stance, and the money markets are echoing that quiet tone.

Tactical Strategy Implications

If we take this at face value—monetary tightening pushed further into the horizon, a softer bond-buying programme on standby, and slower issuance at the very far end of the curve—it implies a narrower range of price actions. For those of us trading rate products or volatility strategies, that naturally changes the rhythm. Positions tied to short-term hike probabilities may need topping up or rolling forward, particularly if there’s more signalling of policy passiveness at upcoming central bank briefings.

A flatter curve may persist longer than previously assumed, so spreads on intermediate tenors warrant fresh scrutiny. There’s also secondary impact on swap overlays, especially if taper expectations pull forward around April 2026. That scenario, if it gathers traction, invites recalibration in asset swap spreads and potentially wider implications on duration hedging strategies.

We can reasonably deduce that optionality pricing might begin to understate risk in the back half of the year if traders remain overly anchored to the 15 basis points narrative. However, the longer horizon offers more varied outcomes, and premia across tail hedges could look more attractive should inflation readings abroad or domestic fiscal measures shift the balance of central bank rhetoric.

There’s no shortage of data coming that could force a reassessment. We’ll need to watch not only inflation trends but also secondary bond auction outcomes, especially if super-long issuance volumes start to wobble. Monitoring liquidity conditions around these tenors will provide cues on investor demand and potential future pricing distortions.

In short, we should treat this period not with heightened caution but with structured flexibility. Those relying too neatly on previous taper timelines or rate path models may find themselves edged out by less linear developments. Framing trades with more staggered exposure could help weather future reshuffles in the bond schedule or confirmatory shifts in policy tone.

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