Australian and New Zealand Bank: The Bank of Japan's policy tightening space is limited in 2026.

Brian Martin, an economist at ANZ Bank's research department, said in a report that the Bank of Japan has limited room for interest rate hikes this year. He expects the country's economy to grow by 0.8% in 2026 and 2027, with the average inflation rate projected to be 1.7% this year and 2.0% next year. Martin said, "Achieving the inflation target is important for the economic agenda of Prime Minister Shinzo Abe, as higher inflation will increase tax revenue and boost nominal GDP growth." ANZ Bank expects the Bank of Japan to raise interest rates by another 25 basis points in the second quarter, possibly in April, bringing the policy rate to 1.0%. He added that the Bank's limited room for interest rate hikes will also provide a relatively favorable environment for Japan's government bond market.