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President Trump’s latest flurry of tariffs implies that the US effective tariff rate will rise to about 17%, from 2.3% last year. That is a little higher than we assumed and so presents modest downside risks to our forecast for global GDP growth and a …
1st August 2025
Minimum wage set to rise the most on record The Bank of Japan sounded more optimistic about the outlook for inflation when it kept policy settings unchanged at its meeting this week. However, we still think that the Bank is underestimating the strength of …
While the Bank of Japan turned a touch more optimistic today, it still sees trade tensions as a major headwind. However, we still believe that policymakers are too pessimistic about the inflation outlook and expect the Bank to resume its tightening cycle …
31st July 2025
Bank of Japan opening door for year-end rate hike The Bank of Japan sounded a bit more optimistic today and we’re sticking to our forecast that the Bank will resume its tightening cycle at its October. The Bank’s decision to leave policy settings …
Economy remains resilient in the face of higher US tariffs The rebound in industrial production in June confirms that Japan’s economy is shrugging off trade tensions and should prompt the Bank of Japan to revise up their forecasts for GDP growth at its …
Most of the recent increase in long-term bond yields appears to have been driven by higher expectations for short-term interest rates as well as reduced demand from traditional investors in long-dated JGBs. Fiscal concerns don’t seem to be playing a major …
30th July 2025
The recent rout in superlong JGBs mainly reflected waning demand from within Japan. Although that trend may not reverse because it is partly structural, we doubt the slump will continue for four reasons. While superlong government bonds have typically had …
28th July 2025
Japan plays its hand well in US trade negotiations A turbulent week started with the loss of the ruling LDP/Komeito coalition’s majority in the House of Councillors in Sunday’s election . PM Ishiba pledged to stay on and with the Upper House election out …
25th July 2025
We held an online Drop-In session yesterday (see here for a recording) to discuss the latest developments in Japan’s economy and financial markets. This Update answers several of the questions that we received . What has the economic impact of higher US …
24th July 2025
Recent US-Japan trade deal has removed a key downside risk What’s more, inflation set to keep surpassing Board’s pessimistic forecasts We expect the Bank to hike again in October The trade deal agreed upon between the US and Japan has removed a key …
Japan’s economy has largely shrugged off global trade tensions and the trade deal reached between the US and Japan has removed a key downside risk. With inflation set to keep overshooting the Bank of Japan’s forecasts, we expect the Bank to resume its …
23rd July 2025
The trade deal with the US announced today removes a key downside risk to Japan’s economy. And while the potential resignation of PM Ishiba creates political risks, our conviction that the Bank of Japan will resume its tightening cycle before the end of …
With Japan’s ruling coalition losing its majority in the Upper House, fiscal policy may be loosened over the coming months. However, we think that the outlook for monetary policy will be a more important driver of long-term bond yields than perceived …
21st July 2025
But tariff uncertainty could still delay rate hikes The economic data released this week leave the case for tighter monetary policy firmly intact. For one thing, export volumes rebounded in June and were nearly as strong as they were in February. …
18th July 2025
Price pressures remain firm, but tariff uncertainties could still delay next rate hike Underlying inflation remains elevated and is almost certain to overshoot the Bank of Japan’s forecasts. However, with trade tensions looming large over the economy, the …
Japan’s exports should soften a bit further While overall exports are still holding up well, those to the US are plunging and we think soft global demand will result in a further decline over the coming quarters. The 0.5% annual fall in export values was …
17th July 2025
Deadline for trade deal extended to 1 st August The looming deadline for the imposition of reciprocal tariffs earlier this week proved to be a damp squib as Trump has now given Japan and a range of other countries until 1 st August to negotiate a deal. …
11th July 2025
Trump has confirmed that punitive tariffs on Asian countries will take effect on 1 st August unless trade deals are agreed by the end of the month. Despite the urgency, negotiations could prove difficult if, as some reports are indicating, the US is …
8th July 2025
Our base case remains that Japan will reach a deal with the US to fend off the threatened 25% US tariff. If that deal is reached soon and includes no or only a modest increase in the US tariff rate, the case for another BoJ rate hike in October remains …
President Donald Trump has released the first of his “letters” threatening to impose country-specific tariffs of 25% on both Japan and South Korea from August 1 st , if those countries can’t reach a deal with his administration by then. Back in April, …
7th July 2025
Wage growth should pick up across second half The slump in wage growth in May largely reflected a plunge in volatile bonus payments and we still expect base pay growth to accelerate further. According to the preliminary estimate, wage growth slowed from …
Japan back in the doghouse The temporary pause on the 24% “reciprocal” tariff Trump imposed on imports from Japan in April is due to expire next week. As things stand, a deal with Japan looks unlikely and it’s possible that Japan will face even higher …
4th July 2025
Firms are shrugging off trade tensions The Q2 Tankan survey showed that the economy is holding up well despite trade tensions, which supports our view that the Bank of Japan will resume its tightening cycle before the end of the year. The Tankan’s …
1st July 2025
Japanese firms not benefitting from trade war after all The subdued rise in industrial production in May means that firms were not benefitting from sky-high US tariffs on Chinese imports and their production forecasts point to continued weakness. The 0.5% …
30th June 2025
Tokyo election defeat is a red herring The poor showing of the LDP in Sunday’s metropolitan election in Tokyo is probably a red herring. While the number of seats the LDP won in Tokyo fell to a record low, the share of people that intend to vote for the …
27th June 2025
The flow of funds data suggest that Japan’s budget deficit has continued to narrow after reaching a 30-year low in 2023. And while the recent plunge in the ratio of government debt to GDP partly reflects valuation changes caused by soaring bond yields, we …
Inflation overshoot points to year-end rate hike The slowdown in headline inflation in Tokyo in June partly reflects the resumption of energy subsidies. With underlying inflation still running well ahead of the Bank of Japan’s forecasts, we still expect …
Prices of public services and rents are rising at the fastest pace in years, which supports our view that inflation will remain above the Bank of Japan’s 2% target even as the impact of the post-pandemic import cost shock fades. That underpins our view …
24th June 2025
Overview – The Bank of Japan will stay on the sidelines for a few more months as GDP growth softens and trade tensions cloud the outlook. But with the labour market set to remain very tight, wages rising strongly and inflation on track to overshoot the …
23rd June 2025
PMIs bolster the case for BoJ to resume hiking before long With output expanding at a healthy pace and price pressures set to remain relatively firm, we continue to believe the Bank of Japan will deliver its next rate hike sooner than most anticipate. …
Case for tighter monetary policy remains strong The Bank of Japan tweaked its bond purchases at this week’s meeting but retained the dovish tone adopted at its May meeting. Indeed, the minutes of the May meeting showed that Board members were worried …
20th June 2025
Inflation overshoot will prompt October rate hike Inflation is set to overshoot the Bank of Japan’s forecasts by a wide margin and we expect the Bank to resume its tightening cycle before the end of the year. Headline inflation dropped from 3.6% to 3.5% …
There are signs that Japanese carmakers are reducing their prices in the US to retain market share, which seems to vindicate the Bank of Japan’s concerns that US tariffs will weigh on corporate profits. Even so, we still expect firms to grant another …
19th June 2025
Japan's exports may well fall in earnest soon While US-bound exports kept falling in May, Japan’s overall exports were little changed and we estimate that net exports will be only be a small drag on Q2 GDP growth. The 1.7% annual fall in export values in …
18th June 2025
The Bank of Japan decided to taper its bond purchases at a slower pace from next year and retained its pessimistic outlook for the economy. However, we expect that mounting upside risks to the Bank’s inflation forecasts will prompt the Bank to hike rates …
17th June 2025
Bank of Japan will hike rates again before year-end The Bank of Japan decided to reduce its bond purchases at a slower speed from next year but gave little away in terms of the outlook for interest rates. With inflation set to surpass the Board’s …
BoJ’s pause won’t last as long as most expect The main show in town next week will be the Bank of Japan’s meeting on Tuesday. As we explain in our BoJ Watch , the Board will almost certainly leave its policy rate unchanged, given its concerns about the …
13th June 2025
The overnight strikes by Israel on Iran mark a major escalation in the conflict in the region and, with the oil market tighter than it was a few months ago, the risks to oil prices look more balanced than we’d previously thought (rather than skewed to the …
Board will remain downbeat about economic prospects for a while However, inflation set to surpass Bank’s forecasts by large margin We expect the Bank to hike again in October We suspect that the Bank of Japan will stick to its downbeat outlook for …
10th June 2025
Wage growth looks less worrisome The slump in earnings growth at the start of the year looks increasingly like a data glitch . Earnings data published yesterday incorporated upward revisions for March and showed a marked rebound in April. (See Chart 1.) …
6th June 2025
Wage pressures showing signs of strengthening With base pay growth on a new upswing, we think the Bank of Japan will restart its hiking cycle before long. According to today’s preliminary estimate, growth in labour cash earnings remained unchanged at 2.3% …
5th June 2025
This report is part of our Future of Europe series. Read more analysis, explore the supporting data, and learn about our broader European coverage on the dedicated Future of Europe page. Europe is being buffeted by geopolitical and geoeconomic shifts but, …
30th May 2025
Firms upbeat about production outlook The latest activity data suggest that if anything, Japan is benefitting from trade tensions. To be sure, industrial production declined in April, but output of motor vehicles rose despite the 25% US tariff on auto …
Japan’s economy shrugging off trade tensions If anything, the April activity data suggest that Japan’s economy is benefitting from trade tensions, which bodes well for our view that the Bank of Japan will hike rates again soon. Taking industrial …
Strong inflation opens up chance of July rate hike The Tokyo CPI showed a further broad-based acceleration in inflation in inflation, which suggests that the Bank of Japan may hike even earlier than our current forecast of October. Headline inflation held …
In this Update, we answer several key questions about how the US Court of International Trade (CIT) tariff ruling might affect the US and other economies. The outlook may now rest on the decision of the Republican-stacked Supreme Court. The upside risks …
29th May 2025
The bulk of the evidence suggests that the recent sharp slowdown in regular earnings growth is a statistical anomaly rather than genuine. With this year’s spring wage negotiations resulting in the fastest pay hikes in decades, we still expect the Bank of …
27th May 2025
Deficit shrinking, debt ratio falling While the cabinet’s approval rating has declined since PM Ishiba came to power in October, it hasn’t yet reached levels that in the past triggered electoral defeats or prompted other Prime Ministers to resign. That …
23rd May 2025
Strong inflation will prompt rate hikes later this year Underlying inflation remained strong in April despite the slashing of public high school fees and we still expect the Bank of Japan to tighten policy further this year. Headline inflation was …
PMIs point to a cooling economy The ongoing weakness in activity, coupled with softer price pressures, will keep the Bank of Japan in wait and watch mode in the near term. According to today’s flash estimate, Japan’s composite PMI fell from 51.2 in April …
22nd May 2025
