HSBC economists say the Bank of Japan will gradually raise interest rates as the Japanese economy gradually moves towards a virtuous cycle between revenue growth and increased spending. They believe that the Bank of Japan will gradually raise interest rates to 1.0% by the first quarter of 2026. Although GDP is likely to shrink by 0.2% in 2024, GDP is expected to exceed the potential growth rate of 1.3% in 2025. The inflation rate is expected to remain high at 2.7% and 2.6% in 2024 and 2025, respectively, due in part to improved domestic conditions enabling businesses to pass on costs. Risks include tariffs, which will adversely affect Japan's economic growth as a major exporter. The Federal Reserve's policy and its impact on the yen will also be the focus. The Bank of Japan has indicated that compared to the past, the exchange rate is more likely to affect prices.

HSBC economists say the Bank of Japan will gradually raise interest rates as the Japanese economy gradually moves towards a virtuous cycle between revenue growth and increased spending. They believe that the Bank of Japan will gradually raise interest rates to 1.0% by the first quarter of 2026. Although GDP is likely to shrink by 0.2% in 2024, GDP is expected to exceed the potential growth rate of 1.3% in 2025. The inflation rate is expected to remain high at 2.7% and 2.6% in 2024 and 2025, respectively, due in part to improved domestic conditions enabling businesses to pass on costs. Risks include tariffs, which will adversely affect Japan's economic growth as a major exporter. The Federal Reserve's policy and its impact on the yen will also be the focus. The Bank of Japan has indicated that compared to the past, the exchange rate is more likely to affect prices.