BoJ Eyes Rate Hike as Core Inflation Rises Amid Global Hawkish Shift

The Bank of Japan (BoJ) has been keeping a close eye on core inflation and wage-driven pressures, which have been increasing after decades of deflation in Japan. According to Rabobank's Senior FX Strategist Jane Foley, the BoJ is focused on ensuring that firms move away from cost-cutting behavior and towards wage hikes.

The latest Outlook for Economic Activity and Prices released by the BoJ has flagged a risk that core CPI could exceed 2%, which would raise the prospect of a rate hike around September or October. However, Foley notes that elevated oil prices may still push various G10 central banks into more hawkish policy positions this year.

The continued closure of the Strait of Hormuz implies inflationary risks for the US Federal Reserve and could also raise the prospect of the USD finding fresh safe-haven support, which would be unfavorable for Japan's Ministry of Finance (MoF).