1. Bank of Japan Board Member Noguchi Advocates Gradual Rate Hikes Bank of Japan (BOJ) board member Noguchi Asahi stated that the fading risks of U.S. tariffs have created conditions for the BOJ to resume interest rate hikes, but such moves must proceed in an orderly and gradual manner. He emphasized the need for caution in raising borrowing costs, warning that prolonged ultra-low real interest rates could harm the economy by exacerbating yen depreciation and inflation.
Earlier, BOJ Governor Ueda Kazuo and nine other board members signaled a potential rate hike as early as next month. The USD/JPY recently hit a 10-month high, sparking warnings of currency intervention amid government concerns over weak yen-driven import cost inflation.
Noguchi noted that while yen weakness historically boosted exports during Japan’s deflationary era, its benefits are diminishing as the economy nears full employment and output gaps narrow. He warned that supply constraints are further eroding these positives while amplifying inflation risks.
At a press conference, Noguchi revealed that underlying inflation—a key BOJ metric—is approaching but still below the 2% target. Further yen depreciation could sustain high food prices and push underlying inflation higher.
He argued that rate hikes would curb consumption-driven inflation without conflicting with the government’s growth objectives. After ending its decade-long stimulus in 2023 and pausing post-January’s 0.5% hike to assess U.S. tariff impacts, Noguchi stressed that gradual normalization is now warranted as tariff risks recede.
For stable 2% inflation, Noguchi projected real wage growth of ~1%—likely achievable between late FY2026 and FY2027. The BOJ must adjust rates to neutral levels at a measured pace to avoid destabilizing growth or prices.
Noguchi highlighted Japan’s steady progress toward its inflation target, citing rising wage hike expectations for 2025. With inflation nearing 2%, delayed tightening risks grow, requiring extreme policy caution.
The BOJ’s next meeting on December 18–19 is widely watched, with over half of Reuters-polled economists expecting a December hike. All predict rates reaching 0.75% by March 2025. Consumer inflation has exceeded 2% for over three years, driven by persistent food prices and labor shortages.
2. Japanese Government Advisers Urge Fiscal Sustainability Private-sector members of a key government panel warned on Thursday that Japan must balance growth-focused spending with measures to maintain fiscal credibility. They noted Q3’s economic contraction amid ~3% inflation (primarily food-driven).
Proposals submitted to the panel called for "necessary and sufficient" crisis-management and growth investments while ensuring fiscal sustainability through wasteful spending cuts. Japan must stabilize its debt-to-GDP ratio while monitoring interest rates, currency, and equity trends, they added.
Markets anticipate PM Takaichi Sanae’s massive stimulus plan to spur more debt issuance and inflation, recently pressuring JGBs and the yen. Four advisers, including ex-BOJ Deputy Governor Wakatabe Masazumi, jointly urged fiscal discipline.
3. Trump Tariffs Disrupt U.S. Small Retailers’ Holiday Supply Chains Loftie CEO Matt Hassett (New York-based sleep tech brand) reported inventory at just 10% of demand due to tariff-induced supply chaos. Trump’s flip-flopping tariffs—from a threatened 180% to 20%—forced small firms to choose between high costs or unreliable alternatives.
Similarly, Brooklyn’s Lo & Sons reverted to Chinese suppliers after evaluating alternatives. Large retailers like Walmart adapt more easily, while small firms face -20.7% operating margins (36% at high bankruptcy risk vs. 12% for large players).
Some brands shifted production (e.g., Haus of Brilliance to Thailand/U.S.), but delays persist. Hassett missed ~50% sales potential due to Black Friday stock shortages.
Key Data Watch: Tokyo’s November CPI (Nov 28, 7:30 Beijing time).
--- Market Snapshots: - Nikkei 225 rose 1.23% to 50,167.10 (first close above 50k in 9 sessions), buoyed by Fed rate-cut hopes and Japan’s stimulus plans. Tech stocks led gains. - USD/JPY traded 155.72–156.45; technicals suggest resistance at 157.70 and support at 155.10.
Geopolitical Flashpoint: - Ukraine’s Pokrovsk sees brutal attrition warfare; Putin claims 70% control, while Kyiv denies collapse. - U.S.-Ukraine peace draft faces Russian preconditions (territorial withdrawals, questioning Zelensky’s legitimacy).