NIKKEI225 Continues Decline, Tariff War and Rate Hikes Main Concerns
Reuters reports sources that BoJ may hike rates in May, and that the threat of global tariff war creates further complications.
- BoJ forecast to keep rates on hold
- Wage and food inflation main concerns
- Trump tariff threats add layer of complication
The NIKKEI225 has dropped 1.94% since Monday and is set to close in the red for a third consecutive week.
BoJ Likely to Hike Rates in May
Reuters reported unidentified sources saying the BoJ may be prompted to discuss rate hikes in May. The factors driving this possibility are wage increases and food prices.
Sources also stated that the final decision at the April 30 – May 1 meeting will also depend on how new US tariffs effect the markets.
Deputy Governor told reporters on Wednesday that “It’s not as if we would hike rates at every meeting,” ruling out a rate increase for the March 18-19 meeting.
Food prices and wage increases play an important part of BoJ’s inflation assessment. Japan’s largest trade union group, Rengo, said that union members were seeking wage increase of 6.09% on average.
The above-mentioned rate is even higher than last year’s wage growth, which was the highest in 3 decades.
NIKKEI225 Live Chart
Inflation and Trump Tariffs
Japan inflation rose to its highest level for 19 months in January at 3.2%. The increase has increased predictions of rate hikes from historically low levels.
Japan is one of the few developed countries to have negative real interest rates. The central bank rate is at 0.50%, while inflation is above 3%.
The BoJ is playing a balancing game as it attempts to adjust the central interest rate to inflation and keep the financial markets steady.
At the same time, it has to ponder on the negative effects that the new US tariffs may have on international trade and the domestic economy.
In either case, hiking rates is likely to create volatility for the NIKKEI225, and Trump tariffs may spark a trade war that would also hurt global stocks and the Japanese index alike.
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