Limited inflation pressures allow BOJ to stay cautious – BBH

JPY is underperforming all major currencies, BBH FX analysts report.

BOJ patience remains justified amid mixed wage data

"Japan’s April labor cash earnings report was mixed. Nominal cash earnings were softer than expected at 2.3% y/y (consensus: 2.6%) vs. 2.3% in March but the less volatile scheduled pay growth for full-time workers ran hot at 2.5% y/y (consensus: 2.3%) vs. 2.1% in March."

"Regardless, wage growth in Japan is not a source of significant inflation pressures given annual total factor productivity growth of around 1%. As such, the Bank of Japan (BOJ) can afford to be patient with its normalization cycle which is an ongoing headwind for JPY. The swaps market still implies about 50bps of BOJ rate hikes to 1.00% over the next two years."