MUFG Executive Warns of Japan's Potential Economic 'Negative Spiral'
The markets are expressing growing concern over Japan's potential 'negative spiral,' a situation where monetary tightening lags behind inflation, leading to a weak yen and rising prices. Hiroyuki Seki, the head of Mitsubishi UFJ Financial Group's Global Markets Business Group, highlighted these concerns, noting that the markets have already priced in a 90% chance of a rate hike by the Bank of Japan (BOJ) this month. The focus is now on how the BOJ will signal its long-term policy path. Seki emphasized the importance of eliminating Japan's extremely low real interest rates to prevent a cycle of inflation and currency depreciation. He suggested that the BOJ should move towards monetary normalization to avoid this negative spiral. The yen's weakness, despite narrowing interest rate differentials with the United States, is partly due to market expectations that Prime Minister Sanae Takaichi's reflationary stance could limit further BOJ tightening. 
