Japan inflation to rise to 1.8%, but downside risks are high
Reflecting a surprisingly strong Spring Negotiation result and weaker yen assumption, we have upgraded our baseline wage and inflation forecasts. We now project higher wage settlements will push inflation towards 1.8% by 2027. Uncertainty is high, however.
What you will learn:
- We anticipate the final outcome of the Spring Negotiation this year will likely be a wage rise of around 4.5% or more – much higher than last year’s 3.6%. We upgraded our wage projections for the next few years to reflect more aggressive wage-setting behaviour by top-tier firms.
- The main downside risk to our outlook is the sustainability of wage increases by SMEs. Another downside risk is disappointing demand growth, which will constrain pricing power.
- In our downside scenario, which assumes that these inter-related downside risks materialise, we project the CPI inflation rate would stabilise at 1.6% in 2027.
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