Danske Bank's research team highlights recent softness in Japanese economic data, noting that the composite PMI fell to 52.5 from 53.9, with declines observed in both manufacturing and services sectors [1]. Additionally, Japan's core CPI inflation, excluding fresh food, dropped to 1.6% in February from 2.0%, marking the first time in four years that inflation has fallen below the Bank of Japan's target, largely attributed to fuel subsidies [1]. Despite these softer indicators, PMIs indicate a significant rise in firms' input prices and continued weakness in the Japanese Yen [1].
Danske Bank expects the Bank of Japan to proceed with its next rate hike in April, even as inflation remains subdued [1]. Market participants are currently pricing in approximately a 50% probability for an April rate hike, reflecting uncertainty amid mixed economic signals [1].
The research team notes that the economic reality has shifted since February, with input prices rising and currency pressures persisting, which may influence the central bank's decision-making [1]. No specific forward-looking statements from analysts beyond Danske Bank's expectation for an April hike are provided in the source [1].
CONCLUSION
Despite softer inflation and PMI data, Danske Bank anticipates an April rate hike by the Bank of Japan, with markets reflecting a balanced probability for this outcome. Rising input prices and yen weakness are seen as key factors supporting the likelihood of a policy move. The market remains cautious, awaiting further signals from Japanese economic data and central bank actions.