Deutsche Bank says Japan’s new political leadership under Sanae Takaichi is likely to usher in an era of aggressive fiscal stimulus, a stance the bank’s Japan economist Ken Koyama describes as fostering a “high-pressure economy.”
- Koyama said Takaichi’s pro-growth agenda, marked by heavy spending, comes as Japan faces chronic labour shortages, sticky inflation, and a weakened yen, all of which could test the sustainability of further stimulus.
Deutsche Bank expects the Bank of Japan (BoJ) to delay its next rate hike
- the first move now seen in January 2026
- followed by additional increases in July 2026 and January 2027
- taking the policy rate to 1.25%.
The shift in outlook reflects a sharp repricing in market expectations: before the weekend, traders saw a 58% chance of an October rate hike, down from 68% at end-September. That probability has since plunged to just 23% amid expectations of prolonged policy accommodation.
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Deutsche Bank’s revised BoJ outlook underscores expectations of prolonged policy divergence with the U.S., likely keeping USD/JPY supported near 150. The mix of fiscal expansion and delayed tightening could reinforce yen weakness into early 2026, even as inflation remains above target.
