Recently, market expectations that the Bank of Japan will raise interest rates at its monetary policy meeting held from January 23 to 24 have rapidly increased.Meanwhile, Japanese Finance Minister Katsunobu Kato gave an in-depth review of the current economic situation at an event of the Japan Academic Association.He pointed out that against the background of continued wage and price increases and interest rate adjustments, the Japanese economy is moving on a reasonable track.

However, he also admitted that many families still face the real dilemma of real wage growth unable to keep up with inflation.This phenomenon highlights Japan's challenge between pursuing economic growth and social equity, and whether it is resolved or not may have a profound impact on the next direction of monetary policy.

After years of ultra-loose monetary policy, the Bank of Japan is committed to pushing inflation to its 2% target.However, since 2022, the recovery of the global economy, the easing of the supply chain crisis and fluctuations in energy prices have caused Japan's inflation rate to continue to exceed the target level.

Data shows that although nominal wages have risen, real wages have been eroded by rapid price increases, putting pressure on consumers 'disposable income and consumption behavior.Kato said in this regard that he hopes that society can expect real wage growth, which will not only improve households 'spending power, but also provide a more positive economic environment for enterprises, thereby promoting the growth of overall economic activity.

The rising market expectations for the Bank of Japan to raise interest rates are closely related to the recent exchange rate performance of the yen.As of now, the exchange rate of the yen against the US dollar has risen to 154.98, setting a new high in nearly a month.The strength of the yen reflects the market's confidence in the Bank of Japan to end its negative interest rate policy. It also shows that investors hope to use monetary policy adjustments to curb inflation and stabilize the domestic economy.

Based on the Overnight Index Swap (OIS) released on Friday, the market forecast that the Bank of Japan will take action at this meeting has reached 99%.Analysts pointed out that such high expectations may put certain policy pressure on the central bank.

Kato's speech also indirectly responded to market concerns about the Bank of Japan's policy adjustments.He emphasized that although inflationary pressures persist, the economy as a whole is developing in the direction it should be.However, he also warned that failure to match real wage growth to match inflation could dampen consumer confidence and pose a long-term risk to economic recovery.

This view echoes recent statements by Bank of Japan Governor Kazuo Ueda.Kazuo Ueda has made it clear that the sustainability of wage increases is a key factor in policy adjustment, and the uncertainty of the domestic economy still needs further observation.

First-level responses are also an important part of current policy discussions.After experiencing the impact of the epidemic, many Japanese companies have gradually regained profitability and shown greater willingness to negotiate wages in the labor market.With spring wage talks looming, most economists expect Japanese companies to be able to respond to inflationary pressures through higher wage increases while remaining competitive.

Market surveys show that 78% of economists believe that this improvement in the labor market provides sufficient policy basis for raising interest rates.However, some analysts have also warned that if companies rely too much on cost-passing mechanisms, it may lead to a further rise in inflation, thus weakening the effect of interest rate hikes.

Volatility of the yen exchange rate is also an important factor affecting the Bank of Japan's decision-making.Since the second half of 2024, the yen has continued to depreciate against the U.S. dollar, even approaching the psychological barrier of 160 at a time, which has intensified the pressure of rising import costs.

Recently, as market expectations for interest rate hikes heat up, the yen has rebounded, demonstrating its sensitivity to the normalization of monetary policy.Eiji Kitada, chief economist at the Binbin Research Institute, believes that the yen's approach to 160 is an important trigger point for policy adjustments, and this interest rate hike may be an attempt by the Bank of Japan to find a balance between stabilizing the exchange rate and targeting inflation.

Overall, the policy options faced by the Bank of Japan are still full of complexity.Against the backdrop of slowing global economic growth, how to both curb inflation and support economic growth through appropriate policy adjustments will be the core challenge for the Bank of Japan at this meeting.

At the same time, policymakers also need to pay attention to the spillover impact of monetary policy changes in major economies such as the United States on Japan to avoid new market fluctuations caused by policy dislocations.Japanese Finance Minister Katsumu Kato's comments on wage growth and consumer confidence indicate that policymakers are aware of potential pressures at the social level and hope to push the economy on a path to sustainable recovery through policy coordination and strengthening market signals.

In the future, as the Bank of Japan's monetary policy path gradually becomes clear, its impact may go beyond the domestic scope, especially the indirect effects on global capital flows and foreign exchange markets that deserve continued attention.For the market, every adjustment by the Bank of Japan is not only a domestic decision, but also an important variable in the global economic landscape that cannot be ignored.