Hawkish expectations rise! Most economists predict that the Bank of Japan will raise interest rates ahead of schedule

The market's expectations for the Bank of Japan's interest rate hike are significantly advancing. On February 19, according to Bloomberg, Junichi Hanzawa, president of the Japanese Bankers Association, stated at a routine press conference in Tokyo that the central bank may start raising interest rates as early as March or April, with the specific pace depending on the evolution of the economic and price outlook. This statement further reinforces the market's hawkish outlook. According to the latest Reuters survey, most economists expect the Bank of Japan to raise the policy interest rate to 1% by the end of June, with the timeline moving significantly forward compared to predictions made before the ruling party's significant victory in the House of Representatives elections. The consensus expectation for the next interest rate hike has shifted from September to the first half of the year. In December last year, the Bank of Japan raised the interest rate to 0.75%, the highest level in 30 years, and clearly stated its readiness to continue the rate hike process. Morgan Stanley's recent survey of U.S. investors also confirms this hawkish shift. Some investors have begun to price in the possibility of the interest rate hike being brought forward to April, and even the possibility of action being taken at the March meeting cannot be ruled out. Analysts point out that the joint foreign exchange check conducted by Japan and the U.S. in January, along with the meeting scheduled for March, may create external policy coordination pressure, prompting the Bank of Japan to act early in March. According to Daily Economic News, on February 9, Japanese Prime Minister Sanae Takaichi announced at a press conference that she would visit the U.S. in March to meet with President Trump, stating that it would open a new chapter in the Japan-U.S. alliance. Data Lagging: Bank of Japan's April Meeting in "Blind Flight" Although there are still differences in the market regarding the specific timing of the interest rate hike, the minutes from the January meeting have revealed that internal disagreements are converging. Some policy committee members, while supporting the interest rate hike, also pointed out that, apart from food and dining out, the transmission of labor costs to core CPI is still limited by insufficient household consumption capacity, and the subsequent inflation trend still needs data verification. It is noteworthy that the timing of the release of key inflation data is significantly lagging behind the policy meeting: the national CPI for April and the Tokyo CPI will be released on May 22 and May 1, respectively, which means that the Bank of Japan's April meeting will make decisions in the absence of core data. In this context, Morgan Stanley advises investors to pay attention to supplementary indicators such as the Tankan survey and branch manager meetings for implicit signals. At the same time, the market is highly sensitive to recent statements from central bank committee members, with speeches from Deputy Governor Himino (March 2) and Koeda (February 24) becoming important windows to gauge policy direction, potentially providing key guidance for market expectations during the data vacuum period. Meanwhile, the market is closely watching whether Sanae Takaichi will again call for the Bank of Japan to maintain low interest rates, as her policy stance may exert potential pressure on the monetary authorities. Analysts believe that the political willingness to intervene in interest rate trends may become an external variable affecting the pace of the central bank's decision-making Shift in Fiscal Policy Narrative Investors are forming a new cognitive framework regarding the fiscal stance of the high-level government. Recent research by Morgan Stanley shows that, despite uncertainties surrounding the specific framework and timing of the consumption tax reduction, including whether to implement a temporary measure for two years, the market narrative has undergone a significant shift: from concerns about excessive fiscal expansion to gradually assessing that fiscal easing will be selectively advanced. This judgment aligns with Morgan Stanley's view of the robust fundamentals of Japan's fiscal situation. However, considering the significant holdings of overseas investors in the ultra-long-term Japanese government bond market, concerns about fiscal sustainability will not fade. Recent focus will be on the latest developments from the National Committee on Consumption Tax Reduction, as the market closely evaluates the direction of discussions within the committee and its potential impact on the fiscal management framework, while cautiously considering the practical feasibility of related policy implementation. Rising Expectations for Economic Upswing Against the backdrop of a consolidated political foundation for the ruling party, the market's attention on Japan's economic upside is extending from a purely anti-inflation logic to the realms of security and strategic investment. Morgan Stanley's research indicates that, aside from price trends, investors are highly interested in the industrial impacts of national security-related policies. There is a general expectation that security-related fiscal budgets will continue to expand, focusing on two main directions: one is crisis management and strategic investment areas, covering economic security, food, energy, resources, healthcare, and national resilience; the other includes 17 key strategic sectors such as artificial intelligence, semiconductors, shipbuilding, and aerospace. It is noteworthy that, regarding the previously proposed $550 billion investment plan for the United States, some investors expect that specific project details may gradually be disclosed after the Japan-U.S. meeting in March. At the same time, the market's attention on the newly discussed defense spending targets is heating up, particularly regarding the funding usage details of non-core defense spending projects (such as infrastructure)