Wage growth is starting to outpace inflation and with real incomes rising, the rebound in consumer spending has further to run. With the Bank of Japan sounding more upbeat at their October meeting and domestic conditions warranting further policy tightening, we expect the BoJ to lift rates to 0.5% in December. However, we expect wage growth to slow again next year as the slowdown in inflation over the past year prompts unions to demand smaller pay hikes. And even if the yen remains weak, the impact of the previous import cost shock should continue to fade. Accordingly, inflation will fall below the Bank's 2% target next year, bringing its tightening cycle to an end.
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