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PineBridge Investments Expects BOJ to Raise Rates Once More in Next One to Two Quarters; Sees Fed Cutting Rates Three Times in Next 12 Months
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PineBridge Investments stated that Japan's inflation dynamics have undergone a fundamental shift. While earlier inflation was mainly driven by food and energy prices, as such pressures ease, core inflation driven by wages and the services sector is expected to stabilize at around 1%. From an economic cycle perspective, there are now clear signs that both economic growth and inflation have peaked and are trending lower. After previously climbing above 4% to a peak, the inflation rate has now fallen back to the central bank's target level, with upward momentum continuing to weaken. Although the Bank of Japan is expected to continue raising interest rates, given the softening economic fundamentals, the pace of rate hikes is likely to be gradual and the magnitude lower than current market expectations. The Bank of Japan has consistently emphasized monetary policy normalization rather than a shift to a more hawkish stance. Although authorities intend to advance normalization, recent inflation momentum has moderated, partly due to subsidy measures introduced by the Takaichi administration. Even if the effects of such policies are temporary, overall inflationary pressures have clearly cooled. PineBridge Investments expects the Bank of Japan to raise interest rates once more within the next one to two quarters. Thereafter, policy adjustments will become more theoretical in nature, with the objective of guiding the policy rate toward the lower end of the 1% neutral range. The entire tightening process is expected to proceed in an orderly and gradual manner, with the new government inclined to adopt a prudent and steady approach rather than rushing to tighten policy. Overall, Japan faces multiple headwinds on inflation, including unexpectedly lagged inflation dynamics and political uncertainty. Amid these overlapping factors, the Japanese yen once depreciated sharply. However, PineBridge Investments believes these pressures are gradually dissipating and expects the yen to stage a notable rebound from current levels. In addition, PineBridge Investments has revised its outlook for the Federal Reserve, increasing its forecast for rate cuts over the next 12 months from one to three. It has correspondingly lowered its projection for the US 10-year Treasury yield from 4.25% to 4%. It has also removed its previous expectation of one further rate cut by the European Central Bank, a view that is increasingly becoming a market consensus. Taking these adjustments together, PineBridge Investments believes the outlook for the US dollar has turned weaker and is expected to trend downward over the coming year. (sl/da) This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. Auto-translated by AI AASTOCKS Financial News |
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