HSBC expects that the Bank of Japan will raise the policy interest rate to 0.5% at the meeting on January 24, with key factors for this decision being the continued improvement in economic activity and price performance in Japan. Companies are increasingly optimistic about wage growth, and more companies have explicitly proposed future salary increase plans.
HSBC expects that the Bank of Japan will raise the policy interest rate to 0.5% at the meeting on January 24. The key factor in this decision is the continued improvement in Japan's economic activity and price performance; if the rate hike is delayed further, it may affect the credibility of the policy.
The market generally believes that the possibility of a rate hike in January is high. HSBC stated that recent regional economic reports show that companies are increasingly optimistic about wage growth, with more firms clearly announcing salary increase plans for the future.
The Deputy Governor of the Bank of Japan confirmed this trend in a speech on January 14, predicting that wage growth will be strong this year. Governor Kazuo Ueda reiterated this point the following day.
Waiting and watching will bring risks. HSBC indicated that although the Bank of Japan may choose to be cautious due to market volatility from the new U.S. government's inauguration speech on January 20, delaying action also comes with costs. Exchange Rates and import price pressures may further impact Consumer and market sentiment.
The report suggests that the "Shunto" wage negotiations this spring are not a necessary condition for raising interest rates, and that domestic political risks are relatively low in the near term; the budget review is not expected to have a significant impact on the economy.
At the January meeting, the Bank of Japan may revise upward its inflation expectations, citing reasons like the depreciation of the yen and rising food prices. While price risks remain tilted upward, with gradual improvements in the domestic economy, corporate pricing behavior is also expected to improve. According to HSBC's Asia Economic Quarterly data, Japan's economy may achieve a potential growth of 1.3% by 2025, supporting policy normalization, with the terminal rate expected to reach 1.0% in the first quarter of 2026.
Although the possibility of achieving a 1.0% interest rate within the next 1-2 years remains uncertain, the report indicates that a rate hike should be the first step for the central bank to fulfill its commitments.
Editor/ping