Morning from Europe ahead of a big PMI day.

The action in Asian markets continued this early morning with a repricing of the BoJ outlook in JGBs after what is suddenly considered as a slightly more hawkish presser from Ueda yesterday.

The annual “shunto” wage talks commence today and they are going to play a pivotal part in forming the BoJ opinions into the fiscal year of 2024. We remain unconvinced of hikes in Japan if markets continue to pursue rate cuts in the US and Europe as the underlying wage pressures seem to be fading in Japan, rather than the contrary (see chart 1).

The BoJ members probably need to be more convinced that 2024 core inflation projections are too soft to move the needle in March/April and given recent trends (0.05% MoM core over the past two months), they are currently on track to overshoot in their 2024 inflation forecasts. A trajectory at or below 0.15% MoM in core inflation should be enough to convince the BoJ NOT to move.

Chart 1: Japanese wages are not looking scary from an inflation perspective