Deutsche Bank expects the Japanese economy to continue growing at a rate of 1.2% during 2025, supported by a weaker yen that has given Japanese exporters a strong boost in the face of global tariffs. The bank stated that Japan's continued growth despite trade tensions enhances the likelihood that the Bank of Japan will take more aggressive steps in its monetary policy.
Deutsche Bank pointed out that the weaker yen has helped automotive companies to reprice their exports with greater flexibility, contributing to easing the burdens resulting from trade restrictions and avoiding worsening supply chain disruptions. This support provided by the weaker yen has made the economy more capable of facing global pressures, which places the Bank of Japan in front of new options regarding monetary policy.
According to forecasts, the core inflation rate in Japan has exceeded 3%, which is a strong indication of continued price pressures. While the bank expects a gradual slowdown in the pace of inflation, Deutsche analysts believe that the Bank of Japan is still "behind" other central banks in addressing these high levels of inflation.
Deutsche Bank predicts that the Bank of Japan will raise interest rates next October, a move that could be very significant for the course of monetary policy. However, the decision may be linked to political developments, especially with the ruling Liberal Democratic Party's presidential elections on October 4, which may affect the timing of the central bank's actions.
Analysts believe that any move by the Bank of Japan to raise interest rates would represent a fundamental shift in its long-standing policy, especially since it has maintained low interest rates for a long time to support the economy. If this step is implemented, it could strengthen the yen in the future and clearly change the export-import equation.
Overall, Deutsche Bank's position indicates that the Bank of Japan has reached a point where it cannot ignore inflationary pressures and the implications of a weak currency, increasing the likelihood of a decisive interest rate decision in October.
