NEW YORK: The Japanese economy may have reached an “inflection point” leading to a positive cycle of wage increases and steady inflation, James McCormack, head of sovereign ratings at Fitch Ratings, told Jiji Press in a recent interview.

“It’s quite possible that Japan has reached what we would call an inflection point where dynamics of inflation and inflation expectations have changed,” McCormack said.

He said the Bank of Japan is expected to raise short-term interest rates to 0.25 percent by the end of next year, forecasting “very slow, very gradual” increases.

The Japanese central bank last month ended its negative interest rate policy and raised short-term rates to zero to 0.1 percent, its first rate increase in 17 years.

“Wage growth should support consumption going forward and should support…economic growth,” McCormack said. Household and corporate balance sheets “look reasonably strong and capable of absorbing the change,” he said, referring to the increase in interest rates.

He estimated that Japan’s gross domestic product will grow 0.6 percent in 2024 and 0.7 percent in 2025.

The Fitch official predicted that Japan’s inflation will stand at 2.3 percent at the end of 2024 and at 2.0 percent at the end of 2025. “We believe that there is a sustainable inflation” thanks to wage increases, he said.

McCormack suggested that Japan’s credit rating is expected to be maintained at A, the sixth-highest grade, for the time being.

While the ratio of Japan’s outstanding debt to GDP is expected to fall from around 240 percent now to 225 percent at the end of 2025, “there will have to be sustained decline in the debt-to-GDP ratio” to consider raising the rating, he said, adding that the Japanese government also needs to reduce its fiscal deficit.

JIJI Press