The Bank of Japan predictably left rates on hold today. But with inflation expectations soaring, we believe that rates will be raised again sooner than generally anticipated and perhaps even earlier than the November hike we have already penciled in. Indeed, with Japan’s economy set for a sixth successive year of growth at or above its relatively low sustainable pace and Japan’s savings-rich households actually likely to welcome higher interest rates, the central bank will be more sensitive than most to signs that inflation expectations are getting out of control.
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