Dutch International: Japan's weak inflation is temporary and will not change the Bank of Japan's interest rate cycle

Min Joo Kang of the Netherlands International Group stated that the Bank of Japan may overlook the recent inflation slowdown and instead focus on price risks. The economist noted that initial wage negotiations were encouraging, showing minimal impact from the Middle East conflict so far. The decline in PMI reflects recent oil supply shocks and a decrease in new orders, which has indeed heightened concerns about the outlook. However, Kang pointed out that the overall data is still above 50, indicating that businesses view geopolitical risks as temporary. Sticky core inflation, PMI, and wage negotiations raise the possibility of a rate hike in April, but the timing of the hike is still uncertain. The development of the situation in the Middle East will play a key role in the Bank of Japan's decision-making. If the situation stabilizes and there is no evidence of a decline in production or consumption, the likelihood of a rate hike in April will be greater.