The continued depreciation of the yen has led to a rise in inflation expectations and concerns that the central bank may have to cut back on monetary stimulus. The inflation expectation index has risen to a four-month-high, and the breakeven inflation rate has reached its highest level since the beginning of January. Despite the Bank of Japan’s ultra-easy policy stance, the weakness of the yen could lead to higher import prices and fuel public dissatisfaction. Consumer prices excluding fresh food rose 3.5% last month, indicating a stronger underlying trend than expected. The Bank of Japan predicts a slowdown in inflation to 1.6% in the financial year from April 2025, below the central bank’s 2% target, which is why new Governor Kazuo Ueda is not yet pushing for policy normalization.
