Our Japan Chart Pack has been updated with the latest data and our analysis of recent developments.
There are no signs that higher interest rates are resulting in tighter financial conditions or weighing on activity. Given that the recent pick-up in inflation has much further to run, the risks are increasingly tilted towards more BoJ rate hikes than we’re anticipating. That said, by next year the sales tax cut on food and the fading influence of higher energy costs will result in a renewed slowdown in inflation. What’s more, PM Takaichi will continue to nominate dovish members to the BoJ’s Board. The upshot is that we still expect the BoJ to lift its policy rate to a peak of 2% instead of the 2.5% priced in by investors.
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