Danske Bank analysts highlight that Japanese inflation is set to pick up on higher Oil prices and a weaker Japanese Yen (JPY), with markets already pricing a strong chance of an April Bank of Japan (BoJ) hike. Tokyo core CPI surprised slightly on the downside due to subsidies, but underlying measures remain firm. Rising energy costs and currency weakness threaten consumer purchasing power and the recovery, supporting a less accommodative BoJ stance.

Energy and weak yen pressure BOJ stance

"In Japan, Tokyo's March core CPI rose to 1.7% y/y, below expected, as fuel subsidies offset rising costs. An index excl. fresh food and fuel rose 2.3% after a 2.5% gain in February."

"Analysts expect inflation to pick up due to surging oil prices and a weak yen, with markets pricing a 70% chance of an April rate hike. BOJ Governor Ueda hinted at potential action."

"Separate February data, including a 2.1% m/m drop in factory output and a 0.2% y/y decline in retail sales, offers largely outdated insights."

"In Japan, the Q1 Tankan business survey, due overnight, will provide key insights for the Bank of Japan ahead of its policy meeting. Rising energy prices and a weaker yen threaten to erode consumers' purchasing power, jeopardising a recovery."

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