MNI POLICY: BOJ To Check Main Scenario, Risk Balance In April

Bank of Japan policymakers are unlikely to alter their baseline scenario at the March 18-19 meeting given the lack of decisive new information and will instead wait until the April decision after monitoring developments in crude oil prices, the global economy and incoming data, MNI understands. 

Officials remain vigilant about downside risks to the economy and upside risks to inflation as uncertainty surrounding the Middle East situation, and the global outlook persists, but the BOJ has not decided which should take priority in its policy assessment. (See MNI POLICY: BOJ's Tightrope Walk Complicates Rate Strategy) While policymakers will examine the outlook and risk balance at next week's meeting, they are unlikely to alter their views significantly, despite highlighting concerns about the potential impact of geopolitical risks on the economy and inflation.

Officials continue to view financial conditions as accommodative, noting still expanding bank lending amid solid corporate demand, but they continue to monitor the impact of December’s hike and geopolitical tensions on financial conditions and corporate activity through upcoming data releases, such as firms’ financial positions and banks’ lending attitudes in the April 1 release of the Tankan Survey, alongside other corporate studies.

While speculation about a rate hike in March has eased amid the Iran conflict, officials take some comfort from the fact that markets have not ruled out the possibility of a move in April. Although the BOJ is not committed to raising rates then, officials are mindful that once market expectations retreat significantly, it may take time to recover. Financial markets remain volatile and market participants have refrained from strong directional positions as underlying uncertainties persist over the BOJ’s rate-hike path, the Fed’s policy direction and geopolitical risks, the BOJ views.

APRIL TANKAN

Officials are concerned the Tankan may not fully capture the effects of the Middle East conflict on business plans, as heightened uncertainty could delay or obscure corporate responses. The bank is also monitoring inflationary pressures overseas and developments in the global economy stemming from the Iran conflict, along with spillover effects on Japan’s economy and inflation.

Officials are paying particular attention to the upcoming World Economic Outlook from the International Monetary Fund, due in mid-April, for signals about the global outlook and implications for Japan. 

Movements in the dollar-yen exchange rate are also being watched closely as a potential source of upward pressure on prices, especially as underlying inflation moves closer to the bank’s 2% target. BOJ officials believe fx traders remain cautious about weakening the yen further, as they are concerned about the risk of intervention following remarks by U.S. Treasury Secretary Scott Bessent that U.S. authorities independently conducted foreign exchange rate checking. U.S. officials also indicated that coordinated intervention to buy yen and sell dollars would have been considered if requested by Japan.

WAGES

Officials are encouraged by robust wage-hike plans seen as reinforcing progress toward the 2% inflation target. Many firms still intend to raise wages by roughly the same amount as in 2025, having based decisions largely on last year’s consumer-price developments, supporting the wage-price cycle despite uncertainty that could weigh on profits and reduce bonus payments.

Officials want to confirm the strength of wage plans through the first results of this year’s spring wage negotiations released by the Japanese Trade Union Confederation on March 23.