Research Briefing | Sep 20, 2024

Japan’s political calendar and yen will delay a rate hike to December

The Bank of Japan maintained its policy rate at 0.25% during Friday’s meeting. Although we still expect an additional rate hike this year, we now expect that it will take place in December rather than October, given the updated political calendar and the recent yen strength.

What you will learn:

  • Economic developments seem to support an earlier rate hike. Though the CPI inflation is trending down, it is mostly due to a fading supply side pressures and will not likely alter the BoJ’s projection that its inflation target will be achieved in the coming years. Consumption is staring to improve as inflation eases and wages increase after a strong Spring Negotiation.
  • Financial markets are still jittery but are gradually calming down following a period of heightened volatility in early August. As financial markets calm down, the bond market is again pricing in an additional rate hike by the BoJ within this year, backed by recent hawkish comments from BoJ officials.
  • We now think that the BoJ’s next rate hike will be in December, rather than October, to avoid worsening its relationship with the new administration. Although the overall impact of an additional hike will be limited, its impact on vulnerable firms and households will not be politically welcomed. At the press conference, Governor Kazuo Ueda stated that recent yen gains have reduced upside risks to the price outlook and provided more time to consider next move.
Back to Resource Hub

Related Posts

Post

Bank of Japan resumes rate normalisation, cautiously

The Bank of Japan raised the policy rate by 0.25ppts to 0.5% at Friday's meeting, as we expected. We maintain our call that the central bank will hike the rate again to 0.75%, most likely in July after the outcome of the Spring Wage Negotiation is confirmed, especially for small firms.

Find Out More

Post

Trump policies provide tailwinds for industries, with exceptions in Japan

We expect the impact of Trump policies will be a net positive for Japan. The boost from higher import demand due to expansionary fiscal policies will likely overwhelm the adverse impact of targeted tariffs on Japan. The US is Japan's biggest goods export destination, accounting for 20% of total. Most traded items such as machinery and automotives are set to benefit from higher investment demand and consumer spending.

Find Out More

Post

Japan expects mixed impacts from Trump’s second presidency

We've adopted our "limited Trump scenario" as our baseline forecast for Japan. We now assume that the US will impose targeted tariffs on Japan's exports, among several other economies. We think these measures will have a limited impact on overall growth, but globally higher trade barriers are likely to hit Japanese manufacturers' profitability and financial markets. In addition, there is a non-negligible risk that Trump could implement even stricter tariffs.

Find Out More