Bank of Japan Eyes April Rate Hike Despite Inflation Dip, ING Says

Analysts at ING believe the Bank of Japan (BoJ) could move to raise interest rates as soon as April, even after Japan's consumer price inflation cooled more than expected. February's headline inflation dropped to 1.3% year-on-year, down from 1.5% in January, driven primarily by falling fresh food prices and lower utility costs tied to government subsidy programs.

Despite the softer headline figure, ING analysts argue that the BoJ is unlikely to treat this as a signal to delay policy tightening. The bank's preferred measure — core-core inflation, which strips out volatile food and energy prices — held firm at 2.5% in February, remaining well above the central bank's 2% target. This suggests that demand-driven price pressures continue to build within the Japanese economy, giving policymakers reason to stay on a tightening path.

Wage growth is another key factor supporting the case for a near-term rate hike. Japan's largest labor union coalition reported an average pay increase of 5.26%, a notably strong result that points to sustained consumer spending power and broader inflationary momentum. The BoJ has long emphasized the importance of wage-driven inflation as a condition for sustainable monetary normalization.

On the business activity front, Japan's flash PMI data for March showed some softening, with manufacturing easing to 51.4 and services slipping to 52.8, though both indicators remain comfortably in expansion territory, signaling continued economic growth.

ING concluded that the combination of persistent core inflation, robust wage dynamics, and resilient business conditions makes an April rate hike slightly more probable than a June move. That said, analysts cautioned that global uncertainties — particularly ongoing developments in the Middle East and their potential effects on growth and inflation — could still influence the final timing of the BoJ's next policy decision.