Asia week ahead: Japan and Taiwan rate decisions, key data on China and India
The desk anticipates that the Bank of Japan will raise interest rates by 25 basis points to 1.25% amid ongoing inflationary pressures. With Japan's inflation expected to rise to 2.0% year-on-year, the BoJ's move appears designed to front-load tightening before the backdrop becomes more complex next year. Per the full note , this is viewed within the context of Taiwan's uncertain rate decision and critical economic data releases from China and India that will further inform market dynamics this week.
What the desk is arguing
The desk expects the Bank of Japan's policy rate hike to 1.25% to affirm its commitment to tackling persistent inflation. This view aligns with rising inflation forecasts as Japan's core inflation is projected to remain steady at 1.8%, indicating a robust domestic price environment that necessitates action from the central bank.
Additionally, the anticipated rate hikes could culminate in two more increases over the next year, pushing the policy rate to 1.75% by April 2027. Such actions, as suggested by the forward guidance from the BoJ, aim to mitigate inflation risk while addressing the current economic landscape characterized by widening trade deficits and mixed signals from manufacturing metrics.
Where it sits in our coverage
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How other firms see it
Market sentiments reveal varying positions among firms regarding Japan's monetary policy. bofa holds a cautious stance by maintaining a lower target given ongoing economic uncertainties, while jpmorgan aligns with the desk's bullish forecast on the expected rate hike.
Traders should keep an eye on USD/JPY, as any aggressive action from the BoJ could significantly impact this pair, along with the performances of other regional currencies in relation to trade data releases from China and Taiwan.
What the calendar says
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How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01BoJ expected to hike rates by 25bps to 1.25% amid ongoing inflation.
- 02Japan's inflation forecast at 2.0% year-on-year potentially signals more tightening ahead.
- 03Taiwan's uncertain rate decision and upcoming economic data from China and India are critical.
- 04Expect USD/JPY volatility influenced by BoJ actions and regional economic performance.
Market implications
Watch for potential volatility in USD/JPY around the BoJ's decision slated for this week. A stronger-than-expected inflation print could heighten interest in JPY appreciation, with the 1.25% rate change likely serving as a psychological level for traders.
Risks to this view
The call could be invalidated if inflation data deviates significantly from the consensus, or if global financial conditions tighten unexpectedly, leading the BoJ to adopt a more cautious approach. Additionally, any unforeseen dips in industrial output or trade activity could challenge the need for further rate hikes.
Articles Asia week ahead: Japan and Taiwan rate decisions, key data on China and India Published 04:36 Asia week ahead China India Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The Bank of Japan is expected to hike rates by 25bp, while Taiwan’s interest rate decision remains a close call. Markets will also focus on China's activity data and India's inflation figures Deepali Bhargava and Lynn Song Asia Research highlights of the week Asia FX Talking: North Asian currencies continue to perform well China’s strong trade growth continues, driven by tech demand Taiwan’s inflation miss adds uncertainty to our September rate hike call China’s inflation rebounds on higher tech and energy prices Taiwan’s trade surplus hits record high as tech boom continues Japan: BoJ expected to hike rates by 25bp to 1.25% We expect the Bank of Japan to raise its policy rate by 25bp to 1.25% on Friday amid persistent price pressures. Our base case assumes two additional 25bp hikes in January and April 2027, taking the policy rate to 1.75%.
The logic is straightforward: policymakers may prefer to front‑load tightening while inflation remains elevated, and before the policy backdrop becomes more complicated after April. Japan will release its August inflation data earlier that day. Market consensus expects headline inflation to edge up to 2.0% year-on-year, while core inflation remains unchanged at 1.8%.
Japan releases its August trade data and July core machine orders on Wednesday. The market expects export and import growth to moderate to 18.2% YoY and 26.3% YoY, respectively, with the trade deficit widening to $1.05tn as imports outpace exports. Core machine orders, a leading indicator of capital expenditure, are expected to fall 4.8% month-on-month following June’s strong increase, although annual growth should remain positive at 9.2%.
Taiwan: CBC rate decision remains a close call Taiwan’s central bank meets Friday for its quarterly policy review. Our base case remains a 12.5bp rate hike — a modest move consistent with the Central Bank of the Republic of China’s preference for gradual tightening. At this juncture, the outcome remains uncertain.
A relatively benign August inflation read ( Taiwan’s inflation miss adds uncertainty to our September rate hike call ) raised odds in favour of a hold at the meeting. It looks closer to a coin flip at this point. The Federal Reserve decision before the CBC meeting could affect things.
Nonetheless, with strong double-digit GDP growth and price pressures still elevated in core inflation and PPI, we think the CBC will need to hike, either in September or December. China: Domestic weakness persists as IP outperforms China publishes its key monthly activity data on Tuesday. We expect the widening divergence between external and domestic demand to continue in August.
Sources & References
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