INVESTINGLIVEEamonn Sheridan
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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The desk anticipates that Japan's recent surge in wholesale prices will compel the Bank of Japan (BOJ) to consider a more aggressive tightening stance at its upcoming June meeting. Per the full note source, the corporate goods price index rose 4.9% year-on-year in April, significantly outpacing the 3.0% forecast, driven by a 17.5% spike in import prices and an alarming 83.2% month-on-month increase in naphtha prices. This inflationary pressure, exacerbated by geopolitical tensions in the Middle East, suggests that the BOJ may face mounting pressure to adjust its policy framework sooner than previously anticipated. The current market consensus is increasingly leaning towards a rate hike, reflecting a tightening window for the BOJ to maintain its gradual approach amidst these escalating cost pressures.
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.
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.
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.
Key takeaways
Market implications
Traders should monitor USD/JPY for potential volatility as market expectations for a BOJ rate hike increase. A decisive move above 1.075 could signal a shift in sentiment towards a more hawkish BOJ stance.
Japan's wholesale prices rose 4.9% year-on-year in April, far above the 3.0% forecast, as Iran war-driven oil costs pushed import prices up 17.5% and naphtha surged 83.2% month-on-month. Summary: Japan's corporate goods price index rose 4.9% year-on-year in April, well above the 3.0% median market forecast and sharply up from a revised 2.9% in March, marking the biggest annual rise since May 2023 The yen-based import price index surged 17.5% year-on-year in April, the fastest pace since December 2022, after a revised 8.0% gain the prior month Naphtha prices rose 83.2% month-on-month and 79.4% year-on-year in April, while chemical goods prices climbed 9.2% year-on-year, the fastest since September 2022 A BOJ official attributed the broad-based price rises to uncertainty surrounding the Middle East conflict and the effective closure of the Strait of Hormuz The data is expected to increase pressure on the BOJ to raise interest rates at its next policy meeting in June Japan's wholesale inflation surged well beyond expectations in April, with data released by the Bank of Japan pointing to rapidly intensifying cost pressures driven by the ongoing Middle East conflict and the near-closure of the Strait of Hormuz to commercial shipping. The corporate goods price index, which tracks the prices companies charge each other for goods and services, rose 4.9% year-on-year in April.
That was sharply higher than the median market forecast of 3.0% and a significant acceleration from the revised 2.9% recorded in March. It was also the largest annual increase since May 2023, underscoring how quickly the energy shock is transmitting through Japan's supply chain. Import prices told an even starker story.
The yen-based import price index climbed 17.5% year-on-year in April, the fastest pace since December 2022, after a revised 8.0% gain the previous month. A BOJ official attributed the broad-based price increases to uncertainty generated by the Middle East conflict and the effective closure of the Strait of Hormuz, identifying oil and chemical products as the primary drivers. The petrochemical segment saw particularly severe moves.
Naphtha, a key feedstock for plastics and chemical manufacturing, rose 83.2% month-on-month and 79.4% year-on-year in April. Chemical goods prices as a whole climbed 9.2% year-on-year, the fastest rate of increase since September 2022. The scale of those moves suggests the inflation impulse from the energy shock is far from fully absorbed, with further passthrough to downstream industrial and consumer prices likely in the months ahead.
The data arrives at a sensitive moment for the BOJ, which had already been on a gradual tightening path before the latest energy shock complicated the global inflation picture. The April print is expected to sharpen debate within the central bank ahead of its June policy meeting, with markets likely to bring forward expectations for the next rate hike. A wholesale inflation reading nearly double the consensus forecast gives BOJ policymakers limited room to look through the data as transitory, particularly given the structural nature of the supply disruption driving it. ps.
Takaichi has a call scheduled with Trump today. --- A wholesale inflation print nearly double market expectations significantly raises the probability of a BOJ rate hike at the June meeting, which would have broad implications for yen-denominated assets and global carry trades funded in Japanese yen. The 83.2% month-on-month surge in naphtha prices signals acute stress in petrochemical supply chains that will take time to pass through to consumer and industrial prices. With import prices rising at the fastest pace since late 2022, the BOJ faces a narrowing window to maintain its gradual tightening path without being forced into a more aggressive response.
Energy and chemical sector cost pressures of this magnitude typically take several months to fully transmit through manufacturing supply chains. This article was written by Eamonn Sheridan at investinglive.com.
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