Japanese Yen: BoJ hike risks rise with cost pressures – Danske Bank
FXStreet
Last updated: May 21, 2026
Danske Research Team suggests that increased stability in energy markets may elevate the probability of the Bank of Japan (BoJ) implementing near-term interest rate hikes. Japan's May flash PMIs indicate a slowdown in economic momentum and pressure on profit margins. Despite this, a BoJ policymaker has signaled the possibility of a further rate increase in June if cost pressures and growth remain robust.
- Japan's manufacturing sector expanded in May, albeit at a slower pace, with companies building inventories due to Middle East-related supply chain issues and rising costs. The services sector stagnated, halting over a year of consistent expansion. Input prices escalated to their highest level since 2022, and businesses raised their selling prices at a record rate. However, these price increases did not fully offset cost inflation, highlighting growing margin pressures and increasing risks to Japan's economic recovery.
- BoJ policymaker Koeda indicated that the central bank might consider another rate hike at the June 15-16 meeting if elevated cost pressures and sustained growth persist. Upcoming nationwide CPI inflation data for Japan is anticipated. Preliminary Tokyo data suggest that headline inflation, excluding fresh food, decreased in April from March's 1.8%, partly due to government subsidies mitigating the impact of higher oil prices on consumers.
- A key divergence is noted: unlike other central banks, greater certainty in energy markets is predicted to increase the likelihood of the BoJ pursuing near-term interest rate increases.
