Why Japan Is Signaling a Rate Hike
For decades, Japan struggled with deflation and stagnant wages.
However, recently:
• CPI remained above 2% for an extended period
• Wage growth exceeded 3%
• Corporate sector showed stronger investment sentiment
• Consumption gradually recovered
BOJ assessed that Japan may finally be entering a structural change, where inflation is supported by sustainable wage growth.
Impact on the Yen
A rate hike expectation strengthens the yen.
However, markets believe BOJ will move extremely slowly.
Thus, the yen may strengthen gradually rather than sharply.
Global Impact
Because Japan is one of the largest holders of overseas assets, the implications are huge:
• Reduced Japanese demand for U.S. and European bonds
• Higher global bond yields
• Lower liquidity in emerging markets
• Increased volatility in FX markets
Impact on Korea
• KRW/JPY volatility
• Korean exporters facing new cost competitiveness shifts
• Decreased Japanese institutional investment in Korean bonds
• Potential pressure on Korean equity market liquidity
Future Outlook
Analysts expect one moderate rate adjustment this year, followed by extremely slow normalization.
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