Japan markets face ‘behind the curve’ rate risk on faster inflation, BlackRock’s Chiguchi says

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By Noriyuki Hirata and Rocky Swift

TOKYO, Dec 11 (Reuters) – Japanese markets could be jolted next year if the central bank finds itself “behind the curve” in taming inflation, according to BlackRock Japan’s chief investment strategist Yuichi Chiguchi.

The Bank of Japan is widely expected to increase its key policy rate next week by a quarter percentage point to 0.75%, still well below an inflation rate that is around 3%. If price growth accelerates into the second half of 2026, the BOJ could be forced into a faster tightening cycle, Chiguchi said. 

“They will have to chase it,” Chiguchi said of BOJ policymakers. “This behind-the-curve scenario is one situation the markets hate the most.”

Even so, the world’s largest asset manager maintains a bullish stance on Japanese equities for next year after a blockbuster run in 2025 that carried the Nikkei share index to an all-time high.

Euphoria over artificial intelligence has been a major driver for shares globally, and Japanese suppliers to the industry are poised to benefit further from “massive investment” in the sector, Chiguchi said.

The nation’s financial sector is expected to be another pillar for growth, even factoring in possible accounting losses on holdings of Japanese government bonds (JGBs).

JGBs have plunged recently, with 10-year yields reaching an 18-year high of 1.97% last week, driven partly by fiscal concerns surrounding Prime Minister Sanae Takaichi’s stimulus plan. The yield could potentially rise to 2% or 3%, but it would not be a headwind for growth, Chiguchi said. 

“The impact on the real economy would not be overly negative, while the reflationary environment would generally be favourable for corporate activity,” he said.

(Reporting by Rocky Swift and Noriyuki Hirata in TokyoEditing by Tomasz Janowski)