Overview
- The BOJ's new trend gauge, released Tuesday, showed core inflation excluding one-off institutional items rose to 2.8% in April from 2.5% in March.
- The index strips out temporary factors such as energy and education subsidies, producing a faster inflation reading than the government's 1.4% headline core CPI and giving a clearer signal of underlying price trends.
- Markets have reacted strongly: investors priced roughly an 80% chance of a June rate rise to about 1%, a Reuters poll found nearly two-thirds of economists expect a June hike, and the 10‑year JGB yield climbed to about 2.8%, its highest level since 1996.
- The government’s move to prepare an extra budget to subsidize fuel costs aims to ease household pain but critics warn the spending could lift prices further and complicate the BOJ’s effort to tame inflation.
- After ending big stimulus in 2024 and raising rates several times, the BOJ faces a trade-off between hiking further to anchor expectations and the risk that fiscal relief and higher fuel costs keep inflation elevated, a shift that would raise borrowing costs for households and could strengthen the yen as global investors adjust positions.