- In the Japanese economy, prices are moving roughly in line with the Bank of Japan’s forecasts
- Financial markets are witnessing unstable movements due to the conflict in the Middle East
- The rise in oil prices is affecting the Japanese economy due to deteriorating terms of trade
- If the conflict is prolonged, this may affect companies’ activity
- If this also raises inflation expectations, this could raise core inflation
- The conflict could put upward and downward pressure on core inflation
- The Bank of Japan needs to scrutinize the impact of conflict and relative uncertainty
- We must take into account the impact on the economy, prices and related risks in directing monetary policy
These are just some symbolic remarks, and don’t actually provide any major hints or confirmation of their next political move. The Bank of Japan will issue its next decision on April 28 with the odds of a rate hike now standing at around 34%.
The outcome of spring wage negotiations here It was supposed to serve as a platform for the Bank of Japan to raise interest rates this month. This is with average wages rising above 5% again this time. This represents three consecutive fiscal years above the key threshold, reaffirming strong wage pressures.
However, the US-Iran conflict has complicated matters for the BOJ. They want to move forward with stronger inflation dynamics driven by stronger wages. But now with oil prices rising, cost inflation is rising, and this may spill over into core inflation as well. This particular type of inflation driver is not the kind that policymakers want to build the foundation for a strong exit from deflation.
