Japan Macro Watch "Inflation at 1.4% doesn’t deter BoJ rate hikes" Kurihara

Research evidence excerpt

Japan Macro Watch "Inflation at 1.4% doesn’t deter BoJ rate hikes" Kurihara

sue going forward is the speed and magnitude with which future inflation materializes.

Therefore, this release does not alter our expectation of a rate hike in June.

Figure 1: Notable slump of service inflation to 0.9%. Figure 2: Downside surprise was caused by weak food

However, it's 1.6% after excluding policy impact. Also inflation in nationwide compared with the one in Tokyo

recent softness is caused by eating out, which closely

linked to food cost.

ser oftness wea with

by nflation in nation

edp of wide compared

aus

s c

slum

wa

ise

ble vice inflation to 0.9%. Ho rpr

wever, it s 1.6% after excluding policy impac su

t. Also recent sNota side

Down

k fo od iSource:MIC, UBSe Source:MIC

Rising pressure for rate hikes

We view this week’s speech by BoJ Policy Board member Koeda and commentary Board member Koeda is supportive

following the visit of US Treasury Secretary Bessent as further supporting our expectation for rate hike, implying majority of

of a June rate hike. In our assessment, Koeda’s speech on Thursday had a hawkish tone. board members supports tightening

She emphasized that amid risks of sustained price increases and the possibility that

underlying inflation could exceed 2%, it is important to raise policy rates at an

appropriate pace while managing trade-offs with economic activity and addressing

rising prices. He also highlighted the importance of normalizing interest rates by

bringing real rates back toward their equilibrium level. Notably, there was no language

suggesting a wait-and-see stance. Koeda appears aligned with the pro-hike camp, and

including the three members who supported a rate hike at the May policy meeting, a

majority (5 out of 9 members) now favors tightening.