Japan Macro Watch

UBS maintains its expectation for an October BoJ rate hike driven by strong industrial production and firm pricing power. However, heightened political and fiscal uncertainty poses risks to the yen and JGB stability.

Key Takeaways

• 1.BoJ Tankan survey shows resilient manufacturing activity, bolstered by AI-related demand and improved business sentiment.
• 2.Persistent inflation risks and a positive output gap of 0.53% reinforce expectations for a Bank of Japan rate hike in October.
• 3.Government involvement in monetary policy and fiscal concerns (e.g., omission of 'fiscal consolidation') are creating market uncertainty and yen weakness.

Table of Contents

• Resilient economic activity fuels demand-pull inflation
• Firm production and goods consumption
• Rising inflation risks reinforce our October rate hike call
• However, government communication remains a source of uncertainty
• Next week: BoJ consumption activity index and wages in May
• UBS Forecasts
• Valuation Method and Risk Statement
• Required Disclosures

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