ING says Bank of Japan could raise rates as early as April despite weak inflation

LootboxPhobia · 2026-03-24T04:29:45+00:00

ING analysts note that although Japan's recent inflation data has been weak, potential price pressures and strong wage growth may lead the Bank of Japan to raise interest rates in April. The core inflation rate remains above the target, and although business activity has slowed, it still continues to expand. The exact timing of the rate hike will depend on the developments in the Middle East situation.

LootboxPhobia

2026-03-24 04:29:45

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Investing.com - An analyst at ING Group stated in a report that despite recent soft inflation data, the Bank of Japan may raise interest rates as early as April, citing persistent underlying price pressures.

Japan’s consumer price inflation in February slowed to 1.3% year-on-year from 1.5% in January, exceeding expectations. The main reasons were declines in fresh food and utility prices, the latter related to government subsidies.

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However, ING analysts noted that policymakers might overlook the overall slowdown in inflation and focus on core trends. The core inflation rate, excluding food and energy, remains high at 2.5%, above the Bank of Japan’s 2% target.

“Although inflation is below expectations, the Bank of Japan is unlikely to place much emphasis on the recent slowdown,” said ING analysts, pointing out that demand-side pressures persist.

The report also highlighted strong wage dynamics, with Japan’s largest labor union reporting an average wage increase of 5.26%, indicating ongoing inflation support.

Business activity shows some signs of slowdown, with the March preliminary Purchasing Managers’ Index (PMI) falling back but still in expansion territory. Manufacturing PMI declined to 51.4, while services PMI dropped to 52.8.

ING stated that the combination of sticky potential inflation, solid wage growth, and resilient business activity increases the likelihood of a rate hike in the near term, with the chance of a hike in April slightly higher than in June.

However, analysts added that the timing will depend on developments in the Middle East and their impact on growth and inflation.

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