Bank of Japan will lift rates to 2% by end-2027

We learned this week that the Japanese economy was in solid shape on the eve of the Iran war. Moreover, the May PMIs suggest that the Bank of Japan’s fears of a steep downturn are unlikely to materialise. In this context, the Board will be more concerned about falling behind the inflation curve. Although price pressures eased noticeably in April, that weakness was driven in large part by government interventions. With output prices rising at their fastest pace in four years, underlying inflation is likely to accelerate well above target in the months ahead. All told, we now think the BoJ will speed up its hiking cycle, with the policy rate reaching 2% by end-2027, up from our previous forecast of 1.75%.

Please join us online at 09:00 BST / 16:00 SGT on Thursday, 28th May for a 30-minute briefing exploring how Asian economies are navigating the ongoing Middle East crisis and the recent surge in global energy prices. We will examine how central banks are responding, assess the impact on economic activity, and consider what a further escalation in energy prices could mean for the region’s growth and inflation outlook