Rising inflation expectations among Japanese households may nudge central bank to raise rates

According to a Bank of Japan survey, inflation expectations of the country’s households rose in the three months to March, opening the door for the central bank to raise rates.

The poll showed that 86.7% of Japanese households forecast prices to grow one year from now, up from the December survey’s reading of 83.7% and the biggest since June 2024. Meanwhile, 83.5% of the households project that inflation will accelerate five years from now, up from 82.5% in December.

Japanese households expect prices to rise by an average 12.2% a year from now and by 9.6% five years from now. Many of them also reported increased spending on groceries and decreased spending on eating out and leisure activities.

The survey results signal that domestic economic conditions are becoming more favorable for rate hikes by the Bank of Japan, Reuters says. The bank’s governor, Kazuo Ueda, says heightened corporate and household inflation expectations are key drivers for a further increase in borrowing costs.

However, the news agency reports that heightened market volatility and global recession caused by US duties may keep the Bank of Japan from this move at its May 1 meeting.