The Q4 Tankan Survey struck all the right notes from the Bank of Japan’s perspective. It showed that business conditions are improving, profit margins remain elevated, and that firms are upbeat about their investment intentions. Moreover, with firms reporting acute labour shortages, the Board can rest assured that the virtuous cycle between higher wages and higher prices will remain intact. While it’s all but certain that the Bank will lift its policy rate by 25bp this Friday, we’re growing increasingly confident in our above-consensus terminal rate forecast of 1.75% in 2027.
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