Bank of Japan encouraged by pick-up in consumption

A rebound in retail sales likely underpinned the Bank of Japan's decision to raise interest rates this week. Measures by the government, including tax cuts and electricity and gas subsidies, should further support spending over the coming months. However, we expect the virtuous cycle between wages and prices to lose momentum next year. The upshot is that we are forecasting another rate hike later this year and no more after that.