UBS revised its inflation forecast for Japan, predicting higher inflation rates in the coming years due to the strong US dollar and higher energy prices.
The UBS FX team changed its foreign exchange outlook, now expecting the exchange rate to hit 150 by the end of 2025, up from the previous estimate of 145. This change is based on the background of a strong US dollar.
The revised forecast expects a 0.1-0.2 percentage point increase in inflation for 2025 and 2026, driven by higher energy costs and consumer price index (CPI) goods. Core CPI, which excludes volatile fresh food and energy prices, is expected to remain above 2% through 2025.
UBS now expects it to reach 2.0% year over year at the end of 2025, a slight increase from the previous estimate of 1.9%. UBS also indicated that food inflation, currently at 4.2% year over year, is expected to remain at similar levels at least through the first half of this year. This is due to the depreciation of the yen and unstable supply conditions.
The research firm notes that although service inflation has been relatively low at 1.5%, mainly due to weakness in housing rents and public services prices, an acceleration is expected in general service inflation.
However, the development of inflation in specific service components, such as housing rent and public services, which respectively account for 37% and 25% of the weight in services within the inflation calculation, remains weak. – certain U
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