For the BOJ meeting, we expect policy rate to be left unchanged and rate hike policy to be maintained, while keeping a close eye on situation in Middle East. Currently the market is pricing in 48 bps of hike by end CY26 which looks reasonable to us. But under the new Takaichi administration whether this materialises is a different question. While the Japanese Trade Union Confederation (Rengo) will not have released its first set of results from this year's spring wage negotiations by the March MPM (they are due out on 23 March), the BOJ will have access to wage hikes at individual companies on the peak response days (17–19 March). JPY looks set to test their June’24 lows against USD around 161.7. We can expect verbal interventions at current levels too, but actual intervention might not happen before 162. Wrt the ECB meeting on 19th March, we see status quo in the 19th March ECB meeting. Financial markets are currently pricing around 47 bps of hike by Dec’26. Markets are pricing hikes in response to the upward shift in Brent crude oil and Dutch TTF natural gas futures curves, and the expected rise in HICP inflation in response. But we maintain our view that the ECB will keep rates on hold in CY26 though this view is based on an inherent assumption that events will unfold in a way that pushes Brent crude oil and Dutch TTF natural gas futures curves down to levels similar to prior to the conflict, and therefore the impact on the real economy will be limited. Wrt the 19th March BOE meeting, we maintain the view that the MPC will want to cut further towards the middle of its view of neutral territory (around 2-4%), and view cuts as most likely to occur in April and July 2026. But markets currently have priced out the two cuts and are now pricing in a 25-bps hike by end CY26 which looks stretched to us. There is a 3rd possibility also. We think a desire from the MPC to wait-and-see how inflation expectations develop risks the next rate cut being even later in the year than we expect. Our 2 cuts theory is based on the assumption that this is still not a 2022 type scenario. Households do not have the accumulated savings and pent-up demand that they had post-pandemic, and global value chain frictions (aside from those reliant on the Strait of Hormuz) are not present to the same extent. Furthermore, gas prices have not risen like they did in 2022.
