USD/JPY: BoJ wage dynamics back further hikes – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that USD/JPY is trading directionless just below 159.00 as Japanese inflation slowed in February but is expected to rebound. Despite softer headline and core CPI, underlying inflation remains above the Bank of Japan's (BoJ) fiscal 2026 projection. Strong spring wage negotiations are seen justifying a resumption of BoJ rate hikes at the April 28 meeting.

Sticky wages support policy normalization

"USD/JPY is directionless just under 159.00. Japan inflation slows in February before expected to rebound in the months ahead. Both headline and core CPI ex. fresh food fell more than anticipated to near four-year lows at 1.3% y/y (consensus: 1.5%, prior: 1.5%) and 1.6% y/y (consensus: 1.7%, prior: 2.0%), respectively. "

"The decline reflected the government's measures to reduce the household burden of higher energy prices. Excluding energy and fresh food, CPI dipped 0.1pts to a 13-month low at 2.5% y/y (consensus: 2.6%) but is still tracking above the Bank of Japan’s (BoJ) fiscal 2026 projection of 2.2%."

"The solid results from Japan’s latest spring wage talks point to sticky underlying inflation and justify the BoJ resuming raising rates at the next April 28 meeting (25bps hike to 1.00% is 62% priced-in)."

"Rengo members, Japan’s largest union federation, are demanding an average wage increase of 5.94% this year vs. 6.09% last year. This is the third straight year of worker’s pay gains demand exceeding 5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)