The weekly report of Qatar National Bank “QNB” confirmed that there are great opportunities that lead to the exit of the Japanese economic growth from the long -term shrinkage.
“We believe that inflation in Japan will continue for a longer period, which will allow the Japan Bank to continue its gradual process to normalize interest rates,” said the weekly report of the bank, which was titled / Did Japan come out of the long -term shrinkage?
The report pointed out that the repercussions / pandemic of Kovid / led to the high rates of inflation in the various advanced economies to high levels that we have not seen for decades, and in the wake of the pandemic and war between Russia and Ukraine, the “shock of supply” was associated with the closure and geopolitical disturbance measures with the “trauma of demand” resulting from unprecedented economic stimulus measures, which prompted inflation rates to The highest levels in several decades.
He added: Japan seemed to be an exception to this inflationary environment, but, after the major central banks began raising interest rates to curb inflation and expanded the interest rate gap with Japan, the value of the Japanese yen declined sharply, which led to a wave of price pressures in Japan as well.
The report continued, “The sharp decline in the value of the currency led to an increase in global prices, which prompted the inflation of consumer prices in Japan to a peak of 4.3 percent on an annual basis in January 2023, a level that this country has not seen more than three decades ago, and the increase in inflation rates of Japan Bank ended the negative interest rates for the first time in 17 years, as it raised interest rates twice since then, although they do not It is still at a low level of 0.5 percent. “
The report emphasized that during the period 2023-2024, consumer prices were moderate, although it is still higher than the targeted percentage in an uncomfortable manner, with the decline of international prices for energy and basic commodities, and the government provided temporary support to families through subsidies, but price pressures returned sharply, and inflation rose to 3.7 percent in December last year and then to 4 percent in January of this year, driven by high food prices Local, gradual cancellation of government energy support, and high rental prices.
The weekly report added, “The high prices of the Japanese economy in a very exceptional scenario, for decades and before the pandemic, Japan was suffering from a negative cycle of shrinkage and stagnation of economic activity, and during the period 2013-2020, a period that became known as” Abinomics “in relation to the then Prime Minister Shinzo Abe, Japan implemented a strong package of financial and critical stimulus measures to enhance the economy, but this, but this, but this, but this, but this, but this, but this, but this, but this, but this, but this, but this, but this, but this, Policies have not been successful in removing the country from the negative vortex, with the roots/shrinkage behavior/in the private sector.
“But from our point of view, there is a great opportunity for the current inflation environment to the exit of Japan from the long -term shrinkage. In fact, we believe that inflation in Japan will continue for a longer period, which will allow the Japan Bank to continue its gradual process to normalize interest rates, with the support of three main factors.”
First: inflation data indicates the continued rise in prices and the conversion of inflation expectations. Inflation has been much higher than 2 percent targeted in monetary policy for nearly three years. Moreover, in a country where price stability is considered the rule, high inflation changes expectations, which are now decisively for companies and families. The questionnaire shows that Japanese companies expect inflation rates of 2.3 percent over the next three years, which are much higher than the target in monetary policy. The renewal of price pressures and the lack of stability of inflation indicates that the overheat continues to rise in the medium term.
Second: Increasing salaries improves the purchasing power of families, which is expected to enhance consumption and inflation. In the middle of 2024, modified wages, according to prices, began to recover, against the backdrop of the “Shonto Agreement” – the annual negotiations between trade unions and corporate leaders – which led to increases in average wages by 5.1 percent of that year, the largest in 33 years. The negotiations this year are scheduled to reach an agreement that would lead to increases in wages approximately 5.3 percent, and this means an additional improvement in the purchasing power of families, and in support of consumption, as well as additional pressure on prices. Moreover, wage increases come in light of the lack of employment, which leads to the transmission of the effect of high labor costs more powerfully to the high prices determined by companies.
Third: The government presented a financial program aimed at providing more motivation for the economy, which leads to additional pressure on prices. The financial plan includes a record budget equivalent to $ 735 billion for the fiscal year 2025, and a supplementary stimulus package of about 90 billion US dollars. The measures included in the program will support families through direct financial allocations for low -income families, and to reduce the impact of the costs of public services and energy, in addition to raising the annual minimum tax -exempt salaries to encourage the work of the workforce, and these expansion financial measures will contribute to increasing inflationary pressures.
In general, inflation in Japan is expected to remain higher than 2 percent targeted in monetary policy until early 2026, against the backdrop of price pressures, inflation forecast change, increase wages, and the launch of a motivational governmental program. This situation will allow the Japan Bank to continue to gradually normalize interest rates, with the main interest rate raised at least once by 25 basis points this year.