Japanese Yen: BoJ hike risks rise with cost pressures – Danske Bank

Danske Research Team argues that greater certainty in energy markets could actually increase near-term rate-hike odds from the Bank of Japan (BoJ). Japan’s May flash PMIs show fading momentum and margin pressure, but BoJ policymaker Koeda has signalled that another hike as early as the June meeting is possible if cost pressures and growth persist.

BoJ signals keep Yen supported

"Japan's May flash PMIs show momentum fading. Manufacturing remained in expansion, but growth slowed, with firms stockpiling amid Middle East‑related supply disruptions and rising costs."

"Services stagnated, ending over a year of continuous growth. Input prices rose at the fastest pace since 2022, and firms raised selling prices at a record rate, though still lagging cost inflation, underscoring mounting pressure on margins and rising downside risks to Japan's recovery."

"BoJ policymaker Koeda's recent comments suggest the BoJ could respond with another rate hike as soon as its 15-16 June meeting if cost pressures stay elevated and growth holds up."

"Overnight, countrywide CPI inflation will be released in Japan. Tokyo data suggest headline inflation (excl. fresh food) declined in April from 1.8% in March, as consumers are being shielded from higher oil prices by government subsidies."

"Unlike for other central banks, greater certainty in energy markets will likely increase the chances of near-term rate hikes from the Bank of Japan (BoJ)."

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