DBS Group Research’s Chang Wei Liang says Japan’s March Consumer Price Index (CPI) data show underlying price pressures, with headline and core-core inflation edging higher and the Bank of Japan (BoJ) reportedly set to raise its inflation forecast. He expects BoJ rate hikes to remain likely but possibly delayed, and sees USD/JPY staying supported by high Oil prices yet capped below 160 due to intervention risks.

Inflation backdrop and BOJ timing

"Japan’s headline CPI for March rose to 1.5% y/y (Feb: 1.3%), while core-core CPI eased a tad to 2.4% y/y (Feb: 2.5%). Behind the tepid headline number is a build-up of price pressures that are being moderated by government fuel subsidies."

"Given passthroughs from crude prices over time, the BOJ is reportedly considering raising its inflation forecast sharply for its next quarterly outlook."

"Rate hikes will still be likely, though the timing could be delayed till June amidst high uncertainties over the Middle East. "

"USD/JPY could remain supported amid high oil prices without a BoJ rate hike next week, but it should hold below 160 on risks of triggering verbal interventions from Finance Minister Katayama."

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