Global Macro Views

Inflation Pressures Rise in Japan

Global Macro Views Blog
March 2024

Is the Bank of Japan’s emergency policy no longer necessary in 2024?

With most central banks like the US Federal Reserve and European Central Bank set to lower interest rates later this year, the Bank of Japan (BoJ) stands out as the exception. On March 19th, the BoJ lifted its policy rate out of negative territory, where it has been since 2016, and scrapped its yield curve control program. Why is Japan swimming against the currents of global monetary policy? Well, Japan is experiencing its most significant inflation pick-up in decades, powered by solid wage growth, a strong post-pandemic growth rebound, and the yen’s depreciation. Annualized inflation has run above the BoJ's 2% target since April 2022 with signs suggesting it has momentum.

Governor Ueda sees emergency policy settings like negative rates and yield curve control as no longer appropriate and is steering Japanese rates higher.  We expect a gradual tightening cycle to follow March’s rate hike, with follow-up rate increases in October and April 2025. The pace and extent of that tightening cycle will take cues from developments in economic activity and prices, with the strong outcome of this spring's 'shuntō' wage negotiating rounds a key driver.

Inflation Pressures Rise in Japan

% year-over-year

Inflation Pressures Rise in Japan


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