📝BoJ Policy Rate Could Rise To 2%: UBS

Japan's demographics and labor supply have increased and plateaued, with young people considered a "precious asset" but experiencing high turnover, even in traditional establishments like government ministries. Professor Toshitaka Sekine, a ex-Chief Economist at the BoJ, said at the UBS OneASEAN summit that BoJ's policy rate could rise to around 2%, based on the Taylor rule and an inflation target of 2%, despite potential negative impacts on debtors, including the Japanese government. He believes a rate hike is possible in May but more likely in July, and that the Bo] is not particularly sensitive to the exchange rate, although a weaker yen could make it politically easier to hike rates. Japan's nominal rate and inflation rate can move higher, but real neutral rate could remain low due to the large household net asset size, mostly owned by those over 60, which has not declined despite the aging population. He believes repatriation flows will not be significant, as Japanese households have not significantly increased their exposure to US assets, though Japanese corporates' increased overseas investments could contribute to repatriation flows if conditions change. - UBS Strategy