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 BoJ is now likely to front-load policy normalisation
We now expect the Bank of Japan will implement an additional rate hike this year, possibly in October, given the hawkish forward guidance at the July meeting. We previously projected the central bank would wait until next spring to hike again. Thereafter, we expect the BoJ to become more cautious and raise rates only once per year in 2025 and 2026 to reach a terminal rate of 1%.
Find Out More
Post
Japan’s industry nearing the trough, with high tech leading the way
Our new proprietary business cycle phase indicator points to a trough in sight for industry, but with dispersion among sectors. High tech is leading the pack with output firmly on its way up. While most other sectors have yet to reach a cyclical trough, we believe they are now closing in.
Find Out More
Post
Yen volatility – so far, just a tremor for global markets
Abrupt yen appreciations have been associated with, or preludes to, global financial instability. So far, the recent yen surge has had only moderate spillovers to global financial markets, which should not have significant macroeconomic effects. But the episode is not necessarily over and the possibility of further yen gains is a distinct risk.
Find Out More