Inflation is heating up. Mitsubishi UFJ Group predicts that the Bank of Japan will raise interest rates three more times.

The Governor of the Bank of Japan, Katsuhiro Taketani, stated that they will continue to raise interest rates. The Chairman of Mitsubishi UFJ Financial Group, Sanma Ken, mentioned at the International Financial Leaders Investment Summit in Hong Kong that inflation in Japan is picking up, so it is necessary to raise interest rates to address this issue. He also explained that the weakness of the yen is not beneficial for the domestic economy. Therefore, he expects the Bank of Japan to raise interest rates once before the end of March and two more times between April 2025 and the end of March 2026, bringing Japan's interest rate to a neutral level of 1%. He pointed out that Japanese companies and households do not have high levels of debt, so they are able to adapt to the impact of rising interest rates. In recent years, Japan has actively promoted corporate reforms, improving the governance level of Japanese companies. This has made them more focused on capital efficiency and shareholder returns, leading to a significant increase in dividends and buybacks. With the improvement in the fundamentals of Japanese stocks, they have successfully attracted funds back into the market. Sanma Ken also acknowledged that the biggest challenge at the moment is that the monetary cycles of major economies are not the same. In the 1990s, the trend of globalization led to economic cycles in various countries becoming more synchronized, resulting in central banks around the world having synchronized monetary cycles. However, currently Japan is raising interest rates while central banks in Europe and the United States are lowering them, reflecting the divergence in monetary policies among major economies. Therefore, attention should be paid to how the divergence in interest rate cycles will affect the global economy and global capital markets.