The Bank of Japan revised its forward guidance on Thursday in an attempt to match the dovish stances taken by other central banks.
Given the lacklustre performance of the Japanese equity market, the BoJ will have wanted to match the FOMC. If the Fed can switch to neutral on rates with the stock market hitting highs, the BoJ will have had no compunction following suit: the Topix index has lagged the S&P 500, rising by 14.3% since the low of December 25th last year.
The justification for the BoJ tilt was, of course, low inflation, but the Tokyo CPI report released a day later suggests that the core inflation rate may be heading higher.
The wage data has been less hawkish of late. Nevertheless, real employee compensation adjusted by the core CPI was up 2.88% y/y in 2018: this was the biggest increase since current records began in 1996.
Of course, higher wages will not translate automatically into a pick-up in core inflation. Business investment has risen to the highest share of real GDP in over a quarter of a century. Nevertheless, the dovish tilt from the Bank of Japan could be tested if the tight labour market persists: automation is accelerating, but it may not advance quickly enough for a country where the population is forecast to shrink by 13m to 52.5m in the next 20 years.
