BoJ likely to end zero interest rates in autumn
As expected, the BoJ maintained its policy rate at 0%-0.1% at Friday’s meeting. With more confidence on the ongoing wage-driven inflation dynamics and a strong appetite for policy normalisation, the BoJ looks more likely to end its zero-interest rate policy in the autumn.
What you will learn:
- The median CPI (excluding fresh food and energy) forecast in the Quarterly Outlook Report was unchanged at 1.9% for FY2024 and 2025. The figure for FY2026 was 2.1%, showcasing the BoJ’s confidence that it will achieve the 2% inflation target in coming years.
- The BoJ has increasingly stressed that monetary policy is data dependent. The wage settlement for SMEs at the Spring Negotiation continues to provide upside surprises.
- Assuming the recovery in real incomes and consumption is confirmed in the summer, the BoJ will likely raise its policy rate, arguing that the probability of meeting the 2% target has risen.
- We still project that the BoJ will cautiously raise its policy rate to 1% by 2028. The risk that 1% won’t be reached is also still significant due to the huge downside risks in the medium-term price outlook, especially the sustainability of wage rises and SMEs’ pricing power.
Tags:
Related Posts
Post
Japan’s worsening fiscal outlook raises risk of higher term premium
We expect Japan's fiscal outlook to deteriorate due to weak economic growth and pressure on the government to implement fiscal stimulus. We don't think deficit concerns drove the recent spike in ultra-long Japanese government bond (JGB) yields, but as domestic purchasers reduce their JGB holdings, long-term yields could become more sensitive to fiscal developments in the coming quarters, raising the risk of a higher term premium.
Find Out More
Post
Identifying future manufacturing hot spots in Japan
Japan's industries, which are exposed more to international demand than to tepid domestic demand, are often concentrated in certain cities. This makes these cities more dynamic than others, a feature masked when only looking at national data. Understanding the industrial landscape helps identify growth opportunities across various sectors, as job creation and incomes drive spending.
Find Out More
Post
Tariff turbulence will diminish the BoJ’s chance of rate hike
The Bank of Japan kept its policy rate at 0.5% at Thursday's meeting. Considering the significant downgrading of growth and inflation forecasts in its Quarterly Outlook Report, the central bank will likely take a long pause to assess the impact of high global trade policy uncertainty on growth and inflation.
Find Out More