Research Briefing | Dec 19, 2024

Japan’s BoJ postponed a rate hike to analyse more data

The Bank of Japan kept its policy rate at 0.25% at Thursday’s meeting, as we expected. We believe that the central bank will raise the policy rate to 0.5% in January 2025 and to 0.75% after confirming the strong outcome of the Spring Wage Negotiation next year, most likely in July.

What you will learn:

  • The BoJ is waiting for more data to confirm the momentum of the wage-driven inflation dynamics. Although scheduled earnings have increased at a rate roughly consistent with 2% inflation, data on consumption has been mixed amid lacklustre real income growth.
  • We project another strong wage increase of around 4.5% in 2025, slightly less than 5.1% this year. Risks are tilted to upside. SMEs will generally manage to follow the wage increases by leading large firms, but more unprofitable firms will start to fall behind the overall wage growth trend.
  • We project that rising wages will gradually raise CPI inflation after it slows to around 1.5% by mid-2025 due to the base effect of past inflation. We are more cautious than the BoJ on how much firms, especially SMEs, will manage to pass on rising wage costs to final prices.
Back to Resource Hub

Related Posts

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

Post

Japan’s tariff turbulence to flatten near-term growth

We've cut our GDP growth forecasts for Japan by 0.2ppts to 0.8% in 2025 and by 0.4ppts to 0.2% in 2026, reflecting higher US tariffs and heightened global trade policy uncertainty. We now forecast that Japan's economy will barely grow over 2025-2026 on a sequential basis.

Find Out More