The Bank of Japan keeps interest rates unchanged at 0.5% ING: Tokyo CPI in April became the key weight for the May rate hike

The Zhitong Finance App learned that on Wednesday, the Bank of Japan stood still as scheduled, and hinted that it was becoming increasingly uneasy about the potential impact of escalating trade tensions on the global economy. The Bank of Japan's Monetary Policy Committee voted to keep the policy interest rate unchanged at 0.5%. This result is in line with the expectations of all the economists surveyed.

The Dutch International Group (ING) said that the Bank of Japan's statement showed that its assessment of inflation and growth had not changed much. The statement placed more emphasis on the uncertainty of US trade policy. Governor Kazuo Ueda also commented on tariff risks several times at press conferences. Kazuo Ueda said that he will wait and see how the US tariff issue develops, so the market may prefer the July rate hike rather than the May rate hike.

ING is more concerned about Ueda Kazuo's remarks about recent wage negotiations. Although these remarks are in line with expectations, they are still stronger than expected. The Bank of Japan is closely monitoring possible upward risks to inflation. Furthermore, the recent rise in Japanese government bonds reflects the market's reaction to inflation and developments in economic data.

Ueda believes that now is not the time for the central bank to intervene in the bond market, which shows that he is focusing on tightening his stance. By sending a signal that hawks and doves are intertwined, the Bank of Japan may reserve some room to operate at future policy meetings. ING believes that unless the tariff issue escalates further than already disclosed, the Bank of Japan's priorities should focus on inflation, consumption, and wage growth.

Bank of Japan observes

Preliminary results show that wage growth is expected to exceed 5% again this year, which will support the virtuous cycle of wage growth and sustainable inflation expected by the Bank of Japan. The Bank of Japan wants to see how companies transfer the increase in input prices to retail prices. Generally, businesses raise prices in the first month of the fiscal year, in April.

Therefore, the upcoming inflation data is the key to focus on. Tomorrow's CPI inflation is expected to fall from 4.0% in January to 3.5% YoY in February due to the government's restoration of energy subsidies and the stabilization of fresh food prices.

ING expects this relief to be temporary and inflation will rise again in March and April. More importantly, we should pay attention to the April Tokyo CPI data to be released a few days before the Bank of Japan's April/May meeting. If inflation in Tokyo accelerates again in April, as expected by ING, then the possibility of interest rate hikes in May will increase.