Bank of Japan will remain the odd one out

We no longer expect Japan’s economy to enter a recession. However, with real household incomes set to fall until the end of this year, domestic demand growth will remain sluggish. Accordingly, we expect GDP growth to slow from 2.3% this year to a below-consensus 0.8% in 2024. What’s more, the recent plunge in import prices should soon be passed through to consumer prices and we expect inflation to return to the Bank of Japan’s 2% target by mid-2024. Accordingly, we expect the Bank to keep its short-term policy rate at -0.1% for the foreseeable future.