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.
CPI
Each month, we forecast the dozens of price categories that underlie the consumer price index, and our forecast is for the headline and core CPI to rise by 0.1% and 0.2% in June, respectively. This would be another benign inflation print from the Federal Reserve’s perspective and reinforces our baseline forecast for a September rate cut.
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Private consumption growth in the Philippines has slowed to its lowest rate since 2010 outside the pandemic period. The main culprit is worsening confidence, which has been hit particularly hard by persistent inflation. Although inflation should subside later in the year, the impact on consumer sentiment will take time to feed through, so we don’t expect a substantial boost in spending this year.
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The 2024 federal budget projects a steady diet of wider deficits over the next five years, adding new spending only partly supported by new revenues. The government showed less restraint than we expected, but our analysis finds the new measures will provide a modest boost to GDP and inflation in the near term.
Inflation will likely decelerate in 2024 as the impact of imported inflation wanes. We expect the Bank of Japan will end its negative interest rate policy in April after confirming a high wage settlement. But our medium-term projection is that a zero-interest rate policy will take its place and last for years.
The Bank of Japan (BoJ) left short- and long-term policy rates unchanged at -0.1% and around
0%, respectively, at the meeting on Oct.31. However, the BoJ decided to tweak the yield curve
control (YCC) policy by setting the upper bound of 1% as a reference and by making its Japanese Government Bond (JGB) purchase operations more flexible not to rigidly defend the bound.
The Bank of Japan (BoJ) maintained the policy rates at its September meeting, following a tweak in its yield curve control policy in July. Although this decision was widely expected, the markets are starting to speculate policy changes within the coming quarters, especially after the BoJ governor’s recent interview.