Core Viewpoint - The Bank of Japan faces a dilemma between raising interest rates to curb inflation and maintaining stable rates to support economic growth amid increasing uncertainty from U.S. tariff policies [1][5]. Economic Data Summary - Japan's real wages adjusted for inflation fell by 2.9% year-on-year in May, marking the largest decline in nearly two years and the fifth consecutive month of decline [3][4]. - The consumer inflation rate in Japan rose by 4.0% year-on-year in May, exceeding the Bank of Japan's target of 2% for over three years [4][5]. - Japan's GDP contracted by 0.2% in the first quarter due to a decline in exports, marking the first shrinkage in a year [4][5]. Tariff Impact Analysis - U.S. President Trump's announcement of tariffs ranging from 25% to 40% on imports from Japan and other countries could further exacerbate uncertainty in Japan's economic outlook [1][4]. - If the tariffs are fully implemented, Japan's GDP could decline by 0.8 percentage points, and profits in the automotive sector could decrease by $19 billion [4][5]. Monetary Policy Perspectives - There is increasing divergence in market expectations regarding the Bank of Japan's monetary policy, with some analysts suggesting that the current economic conditions may delay interest rate hikes [5][6]. - Some analysts argue that the high inflation rate relative to wage growth should prompt the Bank of Japan to commit to raising policy rates, which could strengthen the yen and improve purchasing power for consumers [5][6]. - Others suggest that the Bank of Japan should adopt a wait-and-see approach to navigate the uncertainties posed by tariffs, while also signaling a continued inclination towards tightening in the future [6].

Group 1 - Japan's real wages fell by 2.9% year-on-year in May, marking the largest decline in 20 months and the fifth consecutive month of decline, as inflation continues to outpace wage growth [1] - The average wage increase for the fiscal year 2025 is reported at 5.25%, the highest in 34 years, following increases of 5.10% and 3.58% in the previous two years [1] - Nominal cash earnings grew by only 1.0% in May, the lowest increase since March 2024, significantly lagging behind the 4.0% rise in consumer inflation [1] Group 2 - The Bank of Japan is closely monitoring wage trends as they are crucial for maintaining consumer momentum and determining the timing of future interest rate hikes [2] - There is a possibility that the Bank of Japan may raise its inflation forecasts in the upcoming quarterly economic report due to inflation rates exceeding expectations [2] - The rising inflation and rental prices in Tokyo signal a deepening inflation trend in the economy, providing a basis for potential interest rate increases by the Bank of Japan [3] Group 3 - Tokyo apartment rents are rising at the fastest pace in 30 years, with a 1.3% year-on-year increase in April-May, indicating that inflation is permeating the rental market [3] - The increase in rents is seen as a sign of a shift towards normalization in monetary policy, as it reflects rising base prices [3] - The Bank of Japan has identified the real estate market as a key area to monitor closely in its semi-annual financial system report [3]

Group 1 - Japan's largest labor union, Rengo, reported that companies agreed to a wage increase of 5.25% this year, the highest in 34 years, driven by inflation and labor shortages [1] - The wage growth trend has been consistent, with last year's average increase at 5.10% and the year before at 3.58%, indicating a stable wage growth mechanism in a country that has experienced wage stagnation for decades [1] - The business community is forming a new consensus that wage increases must exceed inflation levels, marking a shift in corporate attitudes towards compensation [1] Group 2 - Mizuho Research Institute predicts that if oil prices decline, it could partially offset the impact of U.S. tariffs on corporate profits, leading to a wage increase of 4.7% next year [2] - The chief economist at Mizuho Research anticipates that the Bank of Japan will likely initiate interest rate hikes in the first quarter of next year, supported by confirmed wage growth momentum [2] - Over half of economists surveyed expect the next 25 basis point rate hike from the Bank of Japan to occur in early 2026, with strong wage data providing support for monetary policy normalization [2]

1. Report Industry Investment Rating - Not provided in the content 2. Core Viewpoints of the Report - The report analyzes the liquidity situation from May to July 2025, predicting that the excess reserve ratio in June will reach 1.5%, and in July it will be around 1.3%. It also points out that the central bank may have adjusted its monetary policy operation target to focus on DR001, and the funding rate in July is expected to continue to decline, maintaining an optimistic outlook on the July liquidity environment [2][3] 3. Summary by Relevant Catalogs 3.1 May: Central Bank's Continuous Additional Withdrawal and Slow Disbursement of Replacement Bonds Lead to Lower - than - Expected Increase in Excess Reserve Ratio - In May, the excess reserve ratio rose by about 0.1pct to 1.0%, lower than the expected 1.2%, remaining at the lowest level in the same period since 2019. The central bank's claims on other depository corporations decreased by an additional about 140 billion yuan, and the cumulative decline since March exceeded 1.5 trillion yuan [6] - Fiscal deposits in May increased by 28.1 billion yuan, slightly higher than expected. The government deposit decreased by an additional 53 billion yuan compared to the sum of the general fiscal surplus and net government bond payments, lower than the expected 65 billion yuan. The progress of special refinancing bonds in May might still be lower than expected [8] - The cash return in May was slow, and the reserve requirement and foreign exchange funds were close to expectations. The central bank's claims on the government decreased by 8.42 billion yuan, and the increase compared to before the central bank started bond - buying in July last year was less than 1 trillion yuan [8] 3.2 June: Excess Reserves Return to Neutral, and the Central Bank Promotes Funding Normalization Step by Step with DR001 as the Anchor - In June, the government deposit is expected to decrease by about 74 billion yuan, which is an important source of liquidity supplement. The reserve requirement may consume about 32 billion yuan of excess reserves, currency issuance may increase by about 3 billion yuan, and foreign exchange funds may withdraw about 5 billion yuan. The central bank's claims on other depository corporations are expected to increase by about 1.23 trillion yuan month - on - month, and the excess reserve ratio is expected to be about 1.5%, up about 0.5pct from May [11] - The central bank disclosed the liquidity injection situation of various central bank tools in May and announced the tender information of repurchase - style reverse repurchase one day before the operation, which is interpreted as an attempt to increase policy transparency, but it is still difficult to fully convey the central bank's policy intention [24][27] - In June, the central bank's net lending center of banks continued to rise, accompanied by a decline in funding rates. DR007 did not fall to the expected 1.4% - 1.5% range, while the average value of DR001 fell below 1.4%, which may reflect a change in the central bank's funding regulation model. The central bank may have adjusted its monetary policy operation target to focus on DR001 [29][35] 3.3 In a Steady - State Environment, the Lower Limit of Funding Easing Has Not Been Reached, and Funding Rates in July Are Expected to Continue to Decline - In July, the government deposit is expected to increase by about 46 billion yuan month - on - month, at a relatively low level in the same period of previous years, and the consumption of excess reserves will be marginally weakened. The reserve requirement may decrease by about 10 billion yuan, currency issuance may increase by about 3 billion yuan, and foreign exchange funds may continue to withdraw about 5 billion yuan. The central bank's claims on other depository corporations are expected to decrease by about 24 billion yuan month - on - month, and the excess reserve ratio is expected to be about 1.3%, down 0.2pct from June [42] - As of June, the average value of DR001 has fallen close to the policy rate. Whether it can continue to decline in July is the core issue of market concern. Although the central bank maintains the goal of restricting the rapid decline of interest rates, it also needs to balance cost reduction and maintaining bank spreads. If the current fundamental environment does not change significantly, the current monetary easing tone may continue [3][54] - Historically, interest rate cuts have often occurred in Q3, and if there is an interest rate cut this year, it is likely to be after the Politburo meeting in July. Even if there is no interest rate cut, there may still be room for further easing in the funding market, and it is likely that DR001 will fall below 1.3%. The overall outlook for the July liquidity environment is still optimistic [3]

Group 1 - The European Central Bank (ECB) Vice President Luis de Guindos expressed concerns about the euro's exchange rate, stating that a rise above 1.20 against the dollar could complicate monetary policy, while the current range of 1.17 to 1.20 is manageable [1] - The euro has appreciated by 13.8% against the dollar this year, reaching a high of 1.1755 on June 30, primarily due to concerns over U.S. tariff policies and a crisis of confidence in dollar assets [1] - ECB President Christine Lagarde previously described the euro's strong performance as "counterintuitive but reasonable," indicating that the exchange rate is just one of many factors in policy considerations [1] Group 2 - Within the Eurozone, there are differing views on the exchange rate; Latvian central bank Governor Martins Kazaks warned that rapid euro appreciation could create dual deflationary pressures by lowering import costs and weakening export competitiveness [4] - Lithuanian central bank Governor Gediminas Šimkus also cautioned against the speed of unilateral appreciation, which could disrupt inflation control targets, despite the current exchange rate not breaching historical ranges [4] - In contrast, German central bank Governor Joachim Nagel expressed confidence in the current euro exchange rate, viewing it as close to long-term averages and emphasizing that the management board is more focused on overall inflation dynamics rather than a single exchange rate indicator [4] Group 3 - The ECB has broken its silence on exchange rate discussions, which is rare, especially after initiating a monetary easing cycle in June 2024 and lowering benchmark rates eight times since then [4] - The central challenge for the ECB is balancing inflation reduction with economic growth amid expectations of further rate cuts in September [4] - De Guindos highlighted the need to be vigilant about trade protectionism and geopolitical risks that could impact price stability, particularly the potential lagging effects of U.S. tariff policies on the European economy [4][5] Group 4 - As the July 9 deadline for tariff exemptions approaches, uncertainty remains in U.S.-EU trade negotiations, with the ECB predicting inflation could stabilize at the 2% target by 2027, but short-term risks are skewed to the downside [5] - The volatility of the euro exchange rate is not only a focal point for financial markets but also serves as an important indicator for the ECB's policy direction [5] - De Guindos emphasized that exchange rate issues should be viewed within a broader economic fundamentals framework, highlighting the importance of monitoring all factors affecting inflation [5]

Core Insights - Tokyo's apartment rents are rising at the fastest pace in 30 years, signaling a new wave of inflationary pressure in Japan's economy [1][4] - The latest data from Japan's Ministry of Internal Affairs shows that rents in Tokyo increased by 1.3% year-on-year from April to May, marking the largest increase since 1994 [1][4] - This increase, while modest compared to Tokyo's core inflation rate of 3.6%, indicates a significant shift in the rental market since the asset bubble burst in the early 1990s [1][4] Rental Market Dynamics - The rise in rents is attributed to multiple factors, including increased mortgage costs as the Bank of Japan ends its negative interest rate policy, with floating rates now at 1.875%, the highest since the 2008 financial crisis [5] - Approximately 80% of home loans in Japan are on floating rates, leading landlords to pass on the increased costs to tenants [5] - Maintenance costs are also rising, with significant increases in expenses for repairs and replacements, further driving up rental prices [5] Investment Trends - A notable influx of foreign investors is expected, with 20% to 40% of new apartments in Tokyo projected to be purchased by overseas buyers in the second half of the 2024 fiscal year [5] - This trend may accelerate changes in the market pricing mechanism, as these investors may not be familiar with Japan's two-year fixed rent practices [5] - The combination of a booming stock market and a depreciating yen is attracting foreign capital, making Tokyo's real estate a target for global asset allocation [5] Policy Responses - The Bank of Japan has identified the real estate market as a key area for monitoring in its latest financial system report, contrasting with its previous observations of stagnant rents over the past two decades [5] - In response to rising inflation, the government has announced a subsidy of 20,000 yen per person and plans to restore utility subsidies to balance inflationary pressures with public welfare [5] Consumer Impact - The rising rents are significantly impacting the disposable income of residents, with rent now consuming 28.3% of the monthly disposable income for single residents in Tokyo [4] - This financial strain is forcing individuals to cut back on discretionary spending, highlighting the microeconomic effects of inflation through the housing channel [6]

Core Viewpoint - Tokyo apartment rents are rising at the fastest pace in 30 years, indicating a deepening inflation trend in Japan, which may pressure the Bank of Japan to adjust its monetary policy [1] Summary by Relevant Sections - **Rent Increase Data** - In April-May this year, rents in the Tokyo metropolitan area increased by 1.3% year-on-year, marking the largest increase since 1994 [1] - This increase is relatively modest compared to Tokyo's core inflation rate of 3.6% and the global trend of rising rents, but it signifies that the inflation cycle is penetrating the rental market [1] - **Implications for Monetary Policy** - The rising rents and general price increases provide a basis for the Bank of Japan to consider further interest rate hikes [1] - Hiroshi Kawata, Chief Asian Economist at Mizuho Research & Technologies, stated that the rent increase confirms the Bank of Japan's notion of a "normalization shift," indicating a rise in base prices that could accelerate the normalization of monetary policy [1] - **Monitoring Real Estate Market** - The Bank of Japan has identified the real estate market as a key issue that requires close monitoring in its semi-annual financial system report [1]

Core Viewpoint - The Japanese government bond market is experiencing significant turmoil, with yields on bonds exceeding 20 years reaching historical highs, raising concerns about the impact on government finances and potential risks to the real economy [1][2]. Group 1: Government Bond Market Dynamics - The Bank of Japan (BOJ) has been a major buyer of government bonds, holding over 559 trillion yen, which accounts for 52% of the issuance as of the end of 2024 [1]. - Following the appointment of Kazuo Ueda as BOJ governor, the bank has begun to normalize its monetary policy, reducing bond purchases by 4 trillion yen each quarter since July of the previous year [1]. - Domestic investors, including commercial banks, pension funds, and life insurance companies, are constrained in their ability to purchase bonds due to regulatory and capital requirements, leading to further declines in bond prices and rising yields [2][3]. Group 2: International Investor Sentiment - International investors are increasingly attracted to Japanese government bonds, believing that yields will continue to rise due to predictions of worsening fiscal conditions in Japan [2][3]. - The trading volume of international investors in the Japanese bond market has reached 50% of total trading volume, indicating strong foreign interest [3]. - The yield on Japanese bonds purchased with dollar-denominated risk hedging has reached 7%, making them an attractive option in global duration strategies [3]. Group 3: Implications for Financial Institutions - Rising bond yields may benefit banks in terms of interest income but could also lead to paper losses and increased financing costs, negatively impacting the real economy [3][4]. - The lack of sufficient domestic buyers for government bonds poses sustainability challenges for the Japanese government's fiscal operations [3][4]. Group 4: BOJ's Policy Response - The BOJ has maintained its policy rate at 0.5% and decided to continue reducing long-term bond purchases, adjusting the quarterly reduction from 4 trillion yen to 2 trillion yen starting in April 2026 [4][5]. - The BOJ's recent decisions have not effectively addressed the shortage of domestic buyers and are unlikely to curb the profit-taking actions of international investors [4][5]. - Following the BOJ's decisions, the yield on 10-year government bonds rose from 1.16% to 1.197%, reflecting market reactions to the policy [5].

日本央行官员在问答中表示，过快缩减购债规模可能会在市场上产生意想不到的影响。 6月17日，日本央行货币政策决策会议决定将政策利率维持在现有的0.5%不变，符合市场预期，连续第 三次会议按兵不动。 对于本次议息会议，市场关注的焦点在于日本央行是否会逐步调整购买日本国债规模的计划。日本央行 于2024年3月结束了超宽松货币政策，自2024年8月以来，日本央行每季度减少购买4000亿日元债券，按 此速度，至2026年3月，购买额将从最初的每月5.7万亿日元降至每月2.9万亿日元。 日本央行放缓削减购债步伐，维护市场稳定性 随着日本国内的宏观经济环境和通胀预期发生的显著变化，近期日本超长期国债市场处境艰难，一级市 场债券拍卖遇冷，二级市场债券被大量抛售、长期利率出现急剧上升的局面。 长期以来，日本央行是日本国债市场中最大最稳定的买家，日本央行退出债券购买计划直接削弱了日本 长期债券的需求支撑，引发了日本国债市场流动性枯竭和价格调整压力。 日本国债市场的剧烈震荡，迫使日本央行考虑调整量化紧缩型货币政策的节奏。在本次会议上，日本央 行官员明确表示，长期来看国债收益率应由市场来决定，将考虑市场参与者对债券市场的看法，将以可 ...

谈及经济和通胀形势，植田和男表示，当前日本经济呈温和复苏态势，物价方面未出现大幅波动，不过 通胀预期仍未稳定达到2%的目标水平。他强调，若经济前景符合预期，将适时考虑加息政策。植田和 男还关注到一些外部因素对通胀趋势的潜在影响，如食品价格上涨以及中东地区冲突，若持续发酵，可 能对趋势通胀产生二次影响，为此，日本央行将密切跟踪中东局势动态。此外，他重申贸易政策存在高 度不确定性，认为其影响预计更为显著，当前全球与情绪相关的数据走弱，不少观点认为今年下半年经 济数据不容乐观，在此背景下，全面、深入评估广泛数据和信息，对准确把握经济形势和制定合理政策 至关重要。 在6月16日至17日的议息会议上，日本央行决定维持0.5%的政策利率不变，展现鸽派政策立场。同时， 下调经济增长预测及通货膨胀预期，指出全球经济体贸易政策不确定性高，给日本经济复苏和物价稳定 带来下行压力。日本央行强调需密切监控外汇市场波动、金融市场动态以及国际贸易政策变化对国内经 济与价格走势的潜在影响。尽管近期通胀率有所上升，但央行决策者倾向于在核心通胀率长期稳固接近 2%目标水平前，维持当前宽松货币政策立场。 日本央行购债计划也有调整。近期宣布，在2 ...