JPY Weekly: Key events next week: Intervention watch, BOJ branch managers‘ meeting, Eco-watcher survey, wages and BoP

Research evidence excerpt

JPY Weekly: Key events next week: Intervention watch, BOJ branch managers‘ meeting, Eco-watcher survey, wages and BoP

et forecast of +16. The survey period for

this Tankan was 28 May-30 June (with 11 June as the cutoff date for collection), so the

impact of the US-Iran agreement on 17 June to end the war was not fully reflected. Even

so, it indicates firm corporate sentiment. Capital expenditure plans were also revised

upward, in line with usual patterns. In assessing the BOJ’s rate hike stance, another focus

has been on the degree of tightening in financial conditions caused by previous rate hikes.

However, indicators such as firms’ financial position judgments suggest that financial

conditions can still be viewed as accommodative (Fig.1).

Meanwhile, firms’ inflation outlooks were revised upward across the board, and the five-year-

ahead outlook for general prices among all sizes and industries rose to 2.6%. Although core

CPI inflation has recently slowed thanks in part to policy effects, the continued rise in firms’

inflation expectations suggests that inflation expectations are becoming more sticky around the

2% level. Moreover, the rise in expectations for output prices was even larger than for general

prices, indicating a notable increase in more aggressive pricing behavior (Fig.1). In light of

higher crude oil prices and JPY depreciation, inflation will likely accelerate more strongly as

corporates are likely to try to raise prices more aggressively than before.

The BOJ’s estimated output gap for January-March also remained positive, indicating that

inflationary pressure is being maintained from a fundamental standpoint as well. From the

perspective of upside inflation risks, the need for rate hikes has clearly increased further.

Fig.