The pick-up in inflation excluding fresh food and energy in Tokyo in November points to the nationwide measure rising further above the Bank of Japan’s 2% target. With the yen set to remain weak for longer and next year’s spring wage negotiations set to yield another strong pay hike, we now expect underlying inflation to remain above the Bank’s 2% target for most of next year. Accordingly, we now expect the Bank of Japan to hike rates to an above-consensus 1.25% by mid-2026.
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