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Research Briefing | Apr 15, 2024

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: Asia PacificBank of JapanCountry GrowthCPI inflationForecastsInflationJapanJapanese YenLabour MarketWage Settlement
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