- Japanese economy, prices moving roughly in line with BOJ forecasts
- Financial markets are seeing unstable movements due to conflict in the Middle East
- Rising oil prices are weighing on Japan's economy due to worsening terms of trade
- If the conflict is prolonged, it could weigh on corporate activity
- Should it also push up inflation expectations, that could push up underlying inflation
- The conflict could put both upward and downward pressures to underlying inflation
- BOJ need to scrutinise the impact of the conflict and the relative uncertainty
- Have to take into account the impact on the economy, prices, and related risks in guiding monetary policy
These are pretty much just some token remarks, not really offering any major hints or confirmation of their next policy step. The BOJ will deliver their next decision on 28 April with odds of a rate hike now seen at ~34%.
The result of the spring wage negotiations here was meant to serve as a platform for the BOJ to deliver a rate hike this month. That as the average wage hike comes in above 5% once again this time around. That's three straight fiscal years above the key threshold, reaffirming stronger wage pressures still.
However, the US-Iran conflict has complicated things for the Japanese central bank. They want to push forward with stronger inflation dynamics that are driven by stronger wages. But now with higher oil prices, cost-push inflation is being driven up and that could spill over to underlying inflation too. And that particular type of inflation driver is not the kind that policymakers want in building the foundation to firmly exit from deflation territory.
