The Bank of Japan is expected to continue gradually raising interest rates, as the ongoing wage growth is anticipated to help keep inflation close to the central bank’s 2% target. According to Goldman Sachs’ forecasts, wage growth in Japan is expected to rise to 3.0% this year, compared to 2.8% in 2024, reflecting an acceleration in the pace of increase.
The forecasts indicate that regular wages for full-time workers will rise by 2.9% in 2025, a faster increase than the expected 2.6% in 2024. This wage growth aligns with the Bank of Japan’s goals of maintaining inflation within a sustainable range around 2%.
Akira Otani, a former economist at the Bank of Japan, expects inflation to be around 3.0-3.1% this year, with expectations for it to rise to 3.3-3.4% by 2026 if wages continue to grow at the expected pace. Based on this, Otani believes the Bank of Japan will continue to gradually raise interest rates.
On the other hand, Goldman Sachs expects the Bank of Japan to keep interest rates steady at 0.5% in the meeting concluding on Wednesday, with expectations for a rate increase to 0.75% in July. It is also expected that interest rates will continue to rise at a pace of about twice a year, in line with the ongoing improvement in economic growth and wages.
