Bond Bulletin: Japan’s journey to normalisation

The Bank of Japan (BoJ) is widely expected to deliver an interest rate hike at its December meeting, marking a cautious step towards monetary policy normalisation. This week’s Bond Bulletin explores the implications of this normalisation both domestically and across global fixed income and currency markets.

What does this mean for fixed income investors?

Key events to watch heading into 2026 will be: the FY26 budget, which will provide insight into the government’s fiscal priorities and spending plans (initial plan due end of December 2025, final passage due March 2026), details on multi-year public-private investment programs, which could play a crucial role in driving long-term economic growth (to be discussed in summer 2026), and the possibility of a snap election, which would introduce political uncertainty (a tail risk).

We continue to favour remaining short the belly of the JGB curve, where repricing risk is most acute. The long end of the curve faces a tug-of-war between lower supply and heightened fiscal risks. While valuations support further flattening, fiscal concerns are likely to keep the curve steep.

Risks around the yen are increasingly two-sided. A dovish hike or policy pause could leave US dollar vs. yen drifting higher as carry trades remain attractive; more assertive normalisation could trigger a stronger yen and a partial unwinding of the short positions held across the market.

About the Bond Bulletin

Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Our common research language based on Fundamental, Quantitative Valuation and Technical analysis provides a framework for comparing research across fixed income sectors and allows for the global integration of investment ideas.

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