Our Japan Chart Pack has been updated with the latest data and our analysis of recent developments.
Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. While the Bank of Japan has become more concerned about a global economic slowdown, the domestic conditions would warrant further policy tightening and we expect the Bank to lift rates to 0.5% in December. However, we expect wage growth to slow again next year as the slowdown in inflation over the past year prompts unions to demand smaller pay hikes. And with import price inflation set to turn negative as the yen strengthens, goods inflation will moderate further, too. Accordingly, inflation will fall below the Bank's 2% target next year, bringing its tightening cycle to an end.
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