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Investing.com-- Hotter-than-expected Japanese consumer inflation increases the odds of a Bank of Japan rate hike in July, ING analysts said in a Friday note, especially as core inflation hit an over two-year high.
ING said the BOJ was likely to raise rates by 25 basis points in July, before an extended pause due to high uncertainty over U.S. trade tariffs and the Japanese economy.
Japanese core consumer price index inflation- which excludes the cost of fresh food, rose to 3.5% in April, beating expectations and reaching its highest level since early-2023.
A core reading that excludes both fresh food and energy prices, and is closely watched as a measure of underlying inflation by the BOJ, rose to 3% in April, remaining well above the central bank’s 2% annual target.
“This should strengthen market expectations that the BoJ will hike policy rates sooner than expected,” ING analysts wrote in a note.
“However, with US tariffs likely to impact manufacturing and exports negatively throughout this year, the BoJ’s policy changes are likely to be gradual. Therefore, another rate hike will only be possible by early next year.”
Japanese inflation was buoyed by strong private spending, which picked up after local labor unions negotiated a bumper wage hike in March.
Private spending is expected to remain upbeat in the coming months, keeping inflation underpinned.
The BOJ had said during its early-May meeting that it now expects softer Japanese economic growth and inflation due to uncertainty over increased U.S. trade tariffs.