Japan Inflation Persists as Growth Slows and Market Volatility Rises
Key Inflation Data and Policy Implications
Japan’s April CPI data signals entrenched inflation:
- Headline CPI held at 3.6% YoY, above the BoJ’s 2% target
- Core CPI rose to 3.5%, a 2-year high
- Core-core CPI (ex food and energy) climbed to 3.0%
These readings suggest widespread price pressures, complicating policy decisions.
Growth Weakness and Falling Real Wages
Despite high inflation, Q1 GDP fell 0.2% QoQ (annualized -0.7%) due to:
- Rising import costs driven by geopolitical tensions and U.S. tariffs
- Wage increases from the Shunto labor talks, but real wages fell 3 consecutive months
Weak household spending power adds complexity to BoJ policy.
Japan Real Wages Trend | Source: Government of Japan
Bond Market Response and Yield Climb
Government bond yields surged on inflation and fiscal concerns:
- 10Y JGB yield near 1.65%
- 40Y JGB yield jumped to 3.7%, +100 bps from April
Markets expect potential BoJ tightening in September.
Yen and Asset Market Outlook
The yen gained support from domestic yields and a weaker dollar but remains sensitive to rate trends and BoJ tone.
- Bonds: Long yields may rise further
- JPY: May strengthen if BoJ turns hawkish and global rates stabilize
- Equities: Higher yields and yen appreciation could pressure profits, especially for exporters
Author：Joshen Stephen｜Senior Market Analyst at Ultima Markets
Disclaimer
This content is provided for informational purposes only and does not constitute investment advice. Ultima Markets does not guarantee its accuracy and assumes no responsibility for actions taken based on it.