Synopsis:

Nomura argues that despite a notable pullback in market rate hike expectations following the Trump tariff shock, the Bank of Japan (BOJ) is likely to maintain a relatively hawkish stance unless domestic fundamentals deteriorate more sharply.

Key Points:

• Rising Political Pressure:
  Political voices—especially ahead of the July Upper House elections—are increasingly calling for accommodative measures, including supplementary budgets, tax cuts, and a pause on rate hikes.

• Domestic Data Still Supportive:
  Inflation and wage trends remain on track with BOJ targets, supporting the case for continued rate normalization even as external uncertainties rise.

• JPY Outlook:
  Nomura expects continued narrowing of rate differentials and sees upside pressure for JPY into the second half of the year, assuming the BOJ stays its course.

Conclusion:

Nomura believes the BOJ’s relatively hawkish bias remains intact, though political pressure and market volatility may shape tone and communication. The focus now shifts to Ueda’s remarks for clues on how the BOJ balances domestic fundamentals with external shocks.