Archive · 10 Dec 2025
Markets Fear Japan's Negative Inflation Spiral
Markets are worried about Japan because the country might get stuck in a bad cycle.
This cycle happens when prices keep going up, and the Japanese yen (the country's money) gets weaker.
A top banker from MUFG, a big Japanese bank, says that if the Bank of Japan doesn't raise interest rates enough, this cycle could get worse.
The banker thinks the Bank of Japan should raise rates slowly but steadily to prevent this from happening.
The banker also mentioned that MUFG is carefully buying Japanese government bonds again, especially if the interest rates go up more.
The goal is to make sure Japan's economy doesn't overheat or slow down too much.
Markets fear Japan may enter a negative spiral of inflation and currency depreciation.
MUFG's markets chief warns of a potential vicious cycle if the BOJ doesn't tighten monetary policy enough.
The yen remains weak around 155 per dollar, partly due to expectations of limited BOJ tightening.
MUFG expects the BOJ to raise rates by 25 basis points roughly every six months, reaching a terminal rate of 1.25%-1.5% by mid-2027.
MUFG is cautiously rebuilding its Japanese government bond positions, especially if the 10-year yield exceeds 2%.
- Who
- Markets and Mitsubishi UFJ Financial Group (MUFG)
- What
- Concerns over Japan's potential negative spiral of inflation and currency depreciation
- When
- December 2023 and beyond
- Where
- Japan
- Why
- Due to the Bank of Japan's (BOJ) monetary policy and the weak yen
- Bank
- Mitsubishi UFJ Financial Group (MUFG)
- Market Concern
- Negative spiral of inflation and currency depreciation
- Expected Rate Hike
- 90% chance in December 2023
- Yen Exchange Rate
- Around 155 per dollar
- Projected Terminal Rate
- 1.25%-1.5% by mid-2027
- Nominal Neutral Interest Rate
- Between 1% and 2.5%
- 10-Year Bond Yield
- Above 1.65%