UBS expects the Bank of Japan to gradually raise interest rates next year, and the USD/JPY is unlikely to decline significantly

UBS recently published a research report stating that the Bank of Japan announced last week an increase in the policy interest rate from 0.5% to 0.75%, the highest level since 1995, which aligns with market expectations. Governor Kazuo Ueda hinted that there will be continued rate hikes in the future, and investors may have already anticipated this, resulting in little market reaction. The bank believes that the gradual rate hikes by the Bank of Japan and the Federal Reserve's moderate rate cuts next year are unlikely to lead to a significant decline in the USD/JPY exchange rate.

The bank also noted that concerns regarding Japan's fiscal budget remain, with the latest forecasts indicating that the primary balance deficit will persist, although the debt-to-GDP ratio may decline. Attention is focused on the upcoming Tokyo Consumer Price Index, industrial production, and wage data. Currently, it is predicted that the core consumer price index in Tokyo will slow from 2.8% year-on-year in November to 2.6% in December due to falling electricity prices, while the core-core consumer price index (Core-Core CPI) is expected to remain at 2.8%