Japan wholesale prices surge 4.9% as Iran war drives import cost spike

What the desk is arguing

The desk believes that the latest inflation data from Japan significantly raises the likelihood of a BOJ rate hike in June. The 4.9% year-on-year increase in the corporate goods price index, well above the expected 3.0%, indicates that inflationary pressures are becoming more entrenched in the economy. Per the full note source, the sharp rise in import prices, particularly in energy and chemical sectors, underscores the urgency for the BOJ to respond.

The data highlights a concerning trend, with the yen-based import price index climbing 17.5% year-on-year, the fastest increase since December 2022. This inflationary impulse, particularly from naphtha prices which surged 83.2% month-on-month, suggests that the effects of the energy shock will likely permeate through to consumer prices in the coming months, complicating the BOJ's policy decisions.

Where it sits in our coverage

Our consensus target for USD/JPY is 1.075, with a range between 1.04 and 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)

This view aligns with jpmorgan, which is positioned at the upper end of our range, while bofa presents a contrary stance at the lower end. The desk's call reflects a growing consensus that the BOJ may need to act more decisively in light of recent inflation data.

How other firms see it

Firms aligned with our view, such as jpmorgan and citi, are anticipating a tightening response from the BOJ, while bofa remains skeptical, suggesting a more cautious approach. This divergence highlights the uncertainty surrounding the BOJ's next steps amidst rising inflation.

In this context, the USD/JPY pair is particularly relevant, as movements in this currency pair will likely reflect shifts in BOJ policy expectations. Additionally, the trajectory of Japanese import prices will be a key indicator to watch as it correlates with broader inflation trends.