Stronger Growth in Japan Supports June Rate Hike Despite Softer Inflation

Despite Tokyo's inflation easing to 1.4% due to government subsidies, strong industrial production and retail sales suggest Japan's economy is resilient. ING expects the Bank of Japan to proceed with a rate hike in June.

Key Takeaways

• 1.The Bank of Japan is expected to raise policy rates in June despite a deceleration in headline inflation, driven by robust economic activity.
• 2.Inflation deceleration to 1.4% in Tokyo is largely attributed to temporary government interventions like utility fee waivers and fuel price caps.
• 3.Economic indicators remain strong, with unexpected rebounds in industrial production and steady growth in retail sales supported by chip demand and wage growth.

Table of Contents

• Government efforts to curb inflation are clearly bearing fruit
• Inflation decelerated mostly due to government interventions
• Monthly activity data was surprisingly robust
• Strong chip demand overshadowed energy shocks
• BoJ watch
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