Week in review
- China retail sales slowed to 1.3% y/y
- U.S. non-farm payrolls rose 64K
- BoJ raised policy rate to 0.75%
Week ahead
- Japan unemployment rates, retail sales
- U.S. GDP, consumer confidence
Thought of the week
The Bank of Japan raised rates to 0.75% as expected, the highest level in 30 years. Given that the BoJ has stated that there is an increased chance of its economic outlook being realized, rate hikes are likely to continue. Market consensus is currently penciling in a rate hike every 6 months or so. The concern that Prime Minister Takaichi might discourage the continued hiking due to her preference for greater fiscal spending and supportive monetary policy has not materialised, with worries on inflation and a weakening yen likely playing a part in not discouraging the BoJ from increasing rates. Rising rates do play into other concerns for Japan, where high debt and higher interest rates raise some concerns over fiscal sustainability issues and make the BoJ’s attempts at normalizing policy trickier. Japan’s credit rating has fallen as debt levels have risen to worrisome levels, and the government’s interest costs are only going to increase in the future as rates rise. For now, real interest rates are still negative, but in coming years investors may want to keep an eye on government attempts to achieve fiscal consolidation and maintain credibility.
Japan’s government debt and S&P sovereign credit rating
Source: Bank of Japan, FactSet, S&P, J.P. Morgan Asset Management. Data reflect most recently available as of 18/12/25.
Market data
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