Asia
Japan Central Bank to Retain Monetary Policy Normalization on Entrenched Inflation, S&P Says
Japan's central bank will further progress with the normalization of monetary policy as the country observes entrenched inflation, Fitch Ratings said in a recent release.The country has moved past the decades-long weakness in nominal growth and deflation, with inflation now growingly domestically driven, Fitch said.These driving domestic factors include rapidly growing wages and profits per unit of GDP and expectations of price increases among households, investors, and businesses, Fitch said.Corporates are also exhibiting more solid balance sheets, allowing them to buffer against higher wages costs and greater debt, Fitch said.Better nominal GDP growth also anchors asset price reflation and increased government bond yields, in line with a more normal inflation and interest rate conditions.Average headline consumer price inflation has been at 2.9% since 2022, greater than the Bank of Japan's 2% goal, the rating agency said.Meanwhile, recent drops in headline inflation are driven by government energy efforts rather than a slowdown in underlying price constraints, the rating agency said.The rating agency expects continued rate increases from the central bank, with the policy rate growing by 75 basis points this year to 1.5%.
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