📝BoJ Set to Pause In May On Trade Risks: ING

We have trimmed our GDP forecasts for Japan and changed our BoJ rate hike outlook.

The frontloading of Japanese vehicles and machinery should help boost GDP for the first quarter of this year, but we expect a contraction in the second quarter as a technical payback. Strong wage growth and an easing fiscal stance should support the recovery in the second half of the year. Inflation is expected to soften a bit in this period too, which would support private spending. As a result, we have lowered our GDP growth forecast for 2025 to 1.1% YoY from 1.3% previously. The risk is tilted to the downside, depending on how the government seeks concessions from the US and the possibility of a US recession.

We now expect the BoJ to take a wait-and-see approach at its May meeting. We still pencil in a hike in July if we are right about inflation continuing to rise and wage growth remaining solid. We expect CPI inflation to stay above 3.5% throughout the first half of this year, and in turn, the BoJ should react to curb inflationary pressures. But if global risk-off sentiment continues and grows even more from here, we should revisit the rate hike outlook. - ING