BOJ says wages could come in hotter than expected in latest quarterly outlook report

• Underlying inflation is expected to increase gradually
• Firms’ behavior has shifted more toward raising wages and prices, as per the spring wage negotiations
• Baseline scenario is that virtuous cycle between wages and prices is projected to keep intensifying
• But there remain
  uncertainties regarding this outlook
• Need to carefully monitor factors such
  as firms’ wage and price-setting behaviour
• Moves to reflect
  wages in selling prices could strengthen to a greater extent than expected
• In this situation,
  there is a possibility that wages and prices will deviate upward from the baseline
  scenario
• Future developments in foreign exchange rates and international
  commodity prices also present a risk
• This may lead prices to deviate either upward or
  downward from the baseline scenario
• Full report

All of this is like a supporting document to their rate hike yesterday and reaffirms the current policy path they are on. The details of the report does highlight a risk to both sides of the inflation equation though. But they are taking it more with a glass half full approach, rather than a glass half empty.

This article was written by Justin Low at www.forexlive.com.