Bank of Japan Is Heard From on a Day Otherwise Muted by May Day Observances – Currency Thoughts

Bank of Japan Is Heard From on a Day Otherwise Muted by May Day Observances

May 1, 2025

Bank of Japan officials signaled a longer wait before additional interest rate hikes. In response, the 10-year JGB yield slipped back six basis points, the yen fell 1.2%, but the Nikkei 225 index advanced 1.1%. This week’s four hour 50 minute meeting of the Bank of Japan Board ended with a unanimous decision not to changed the 0.50% short-term interest rate and publication of a the quarterly Outlook for Economic Activity and Prices in which projected GDP growth for both this fiscal year and the next one has been revised significantly downward. For some time now, the BOJ policy guidance has states that

If the aforementioned outlook for economic activity and prices is realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation.

While that mantra has not changed, today’s Outlook update acknowledges a profound increase in uncertainty caused by America’s policies on tariffs and other matters, regarding not only the still-unknown final details of those changes but also how other countries will react and, most importantly, the resulting impact on growth and hence Japanese inflation that then plays out. The baseline forecast for Japanese economic growth this fiscal year (ending in March 2025) has been more than halved to 0.5% from 1.1% predicted in the prior quarterly review. Growth next fiscal year was also sliced significantly to just 0.7% from 1,0% in the prior forecast. Even in fiscal 2028, which ends in March 2029, the baseline sees growth only rising to 1.0%. Likewise, forecasts in FY25 and FY26 of consumer price inflation excluding fresh food and underlying inflation that also includes energy were reduced as well. Moreover, price  pressure is seen likely to be lower next fiscal year than this one, and the full accomplishment of restoring sustainable 2% inflation has been pushed back once again to sometime late in 2027. The baseline underlying CPI forecasts of 1.7% in fiscal 2026 and then 1.9% in fiscal 2027 are each under 2.0%, and forecast risks for both growth and inflation are skewed to the downside, according to the new Outlook.

Aside from Japan, few other major markets were open today. But the United States was one of those. Buoyed by better-than-feared tech corporate earnings reports, the Nasdaq and S&P 500 at this writing show gains today so far of 2.3% and 1.3%, while the DOW and Russell 2000 are up by a lesser 0.7% and 0.9%. The 10-year Treasury yield has climbed five basis points, and the weighted DXY dollar index has moved barely back above the 100 threshold to show a gain on the day of 0.7%. Bitcoin has been strongly in demand with a 2.5% advance. WTI oil has recovered 1.0% but remains south of $60 per barrel, and gold’s price has relinquished another 2.6%.

On the U.S. data front, new jobless insurance claims jumped last week to 241k, a nine-week high, and April saw the most job layoffs in five years.. The April S&P Global U.S. manufacturing purchasing managers index was revised downward by half a point to 50.2, which matches March’s 3-month low. That report also revealed a 10-month low in business expectations and a jump in pricing pressure to a near two-year high. The ISM manufacturing PMI meanwhile fell to a 5-month low and showed a 34-month high on the inflation subindex.

Among the few other economies for which April PMI manufacturing surveys were reported this Thursday,

• The finalized British index was revised 1.4 points higher but, at 45.4, signaled continuing pronounced contraction with the seventh sub-50 score in a row and not much improvement over March’s 17-month low score of 44.9.
• Japan’s final PMI printed at a 2-month high of 48.7.
• Ireland’s index jumped 1.4 points to a 23-month high of 53.0.
• Australia’s revised PMI was also above 50 but at a 2-month  low of 51.7.

Japanese consumer confidence in April printed at a 14-monthj low of 31.2.

Australian import prices shot up 3.3% last quarter, the most in 11 quarters.

Swiss retail sales grew 0.6% in March and were 2.2% above their year-earlier level.

Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Bank of Japan, U.S. manufacturing PMIs

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on Thursday, May 1st, 2025 at 8:42 am and is filed under New Overnight Developments Abroad – Daily Update.
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