HSBC: Stagflation Risks in Japan Cast a Shadow Over Positive Outcomes of Wage Negotiations

Golden Ten Data reported on March 24 that HSBC economists said the Bank of Japan is closely monitoring wage and price trends resulting from the Middle East war. Preliminary wage negotiations show Japan’s wages have grown significantly, but real wages are still being suppressed by inflation, and the current energy shock triggered by the Middle East has made the situation even more complex. This could disrupt the wage-price dynamics the Bank of Japan is hoping to see. HSBC expects the Bank of Japan to raise rates by only 25 basis points this July, but a prolonged Middle East conflict could prompt earlier tightening or increase pressure for further action. This has left the Bank of Japan in a familiar dilemma: raising rates too soon could damage fragile economic growth, while holding back could erode consumer confidence, and an excessive depreciation of the yen would also draw close attention from the United States.