Softer Japan wage data unlikely to derail BOJ hikes, even as yen risk grows

May's softer Japanese wage data is unlikely to derail the Bank of Japan's rate hike path, even as the risk of persistent yen weakness grows, according to analysts at Capital Economics and OCBC.

Capital Economics maintains its view that the BOJ will look through the single month's slowdown in cash earnings growth, keeping its forecast for the policy rate to reach 2% by end-2027 intact. The firm argues that the underlying trend in wages remains supportive of further normalization, suggesting markets should not overreact to one soft print. OCBC, meanwhile, warns of a separate but related risk: persistent yen weakness combined with rising long-end Japanese government bond yields could become a source of broader global volatility. The bank notes that if investors start attributing future BOJ hikes to political rather than economic drivers under Prime Minister Takaichi, the spillover could be more pronounced. For forex traders, the yen's trajectory remains a key variable. Live fx prices and charts on NowPrice show how the market is reacting to the evolving BOJ narrative and wage data.

Looking ahead, the focus shifts to upcoming BOJ meetings and further wage data. The central bank's ability to maintain its tightening bias will be tested by both domestic economic indicators and global market conditions. If yen weakness persists, it could pressure other Asian currencies such as the Korean won and Thai baht. However, OCBC sees the bigger risk in JGB yields spilling over into US, UK and German bond markets, which could trigger a broader repricing of global interest rate expectations. Traders should monitor JGB yield levels and any comments from BOJ officials for clues on the pace of future rate hikes.