On Wednesday morning, the Bank of Japan (BoJ) delivered a hawkish surprise. In addition to the current interest rate hike, it was even made clear that further rate hikes could follow if the BoJ’s new forecasts materialise. Most economists were probably also surprised, as most had expected a subsequent rate hike, notes Michael Pfister, FX analyst at Commerzbank.
BoJ expects slightly lower inflation rate this year
“The BoJ now expects a slightly lower inflation rate this year (2.5% instead of 2.8% year-on-year), but the forecast for next year has been revised up slightly (to 2.1% instead of 1.9% year-on-year). For the core rate, officials continue to expect a rate of 1.9% this year and next, and, somewhat surprisingly, the rate is even expected to rise again in 2026.”
“Officials are assuming that inflationary pressure on the underlying rate will rise in the coming months. To achieve this forecast, rates would have to be roughly in line with the inflation target over the next 9 months. This is not impossible; other central banks have made more unrealistic forecasts in the past. However, it would be well above the average for the 2010s; a lot would have to go right for this to happen.”
“Although the BoJ expects slightly weaker growth this fiscal year, this will not affect growth in the next fiscal year. Nevertheless, the outlook looks quite optimistic, especially considering that the forecasts for 2025 and 2026 are above the average for the 2010s. It gives the impression that the BoJ does not expect its more hawkish stance to have any impact on either inflation or growth.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
