–May Trade to Show Solid Exports, April Machinery Orders Seen Flat with Slight Dip, CPI Inflation Tame on Energy Subsidies, Free High School Education
By Max Sato
(MaceNews) – Here are the key Japanese events for the coming week.
It appears to be a done deal for the Bank of Japan’s sometimes divided policy board. The man who has led the normalization process to unwind large-scale monetary easing since taking office about three years ago set the stage for a follow-up interest rate hike this month, days before being hospitalized for medical treatment.
The nine-member board minus Governor Kazuo Ueda is widely expected to decide to raise the target for the overnight interest rate to 1% from 0.75% in a unanimous or majority vote at its June 15-16 meeting amid growing upside risks to inflation triggered by the Mideast conflict.
It would be the bank’s fifth rate hike in the current cycle and the first since December, when the board unanimously decided to raise the policy rate by 25 basis points (0.25 percentage point) to a 30-year high after standing pat for nearly a year while waiting for the uncertainty created by protectionist U.S. trade policy to ease.
A six-month interval would be a measured pace, not too fast or not too slow, for a central bank that conducted its first rate hike in 17 years in March 2024, when it also ended the seven-year-old yield curve control framework and switched back to a more conventional tool of changing interest rates (the move was followed by rate hikes in July that year and January and December 2025, by 25 bps in the last two).
The governor will submit his opinions in writing but will not vote at the June meeting as he receives treatment for a liver cyst infection found during a routine physical checkup on June 9.
Before the checkup, Ueda used his June 3 speech to convey a message that he was shifting his focus more toward upside risks to inflation from downside risks to economic growth amid uncertainty over how long the Iran war will continue disrupting global economic activity. He referred to the recent spike in producer prices and a rise in inflation expectations among households and businesses.
While remaining mindful of downside risks to the economy, Ueda said, BOJ policymakers “need to be even more vigilant against the risk that inflation could rise significantly, as this could have adverse effects on the economy going forward.”
“Compared to other major economies and Japan’s past performance (about four years ago), the country currently finds itself in a situation where the “secondary ripple effects” of inflation triggered by high crude oil prices are likely to lead to an upward shift in underlying inflation,” he said. “The Bank of Japan believes it is necessary to base its future policy decisions on this premise.”
Government data available at the time of his speech had shown consumer inflation moderated at a faster pace than expected in April, thanks to fuel subsidies aimed at easing the impact of the Mideast conflict as well as free high school education that took effect at the April start of fiscal 2026. Processed food price markups also continued easing. The year-on-year increase in the core CPI (excluding fresh food) slowed sharply to 1.4% after unexpectedly accelerating to 1.8% in Mach from 1.6% in February, well below the bank’s 2% price stability target.
However, the BOJ’s recently focused core measures have shown that inflation is still above the bank’s 2% target. The consumer price index excluding fresh food and institutional factors (such as subsidies and tax changes) rose 2.8% on year in April after the annual rate accelerated to 2.5% in March from 2.2% in February. The rate of increase in the CPI minus fresh food, energy and institutional factors decelerated to a 19-month low of 2.2% in April from 2.6% in March and 2.7% previously, but it is still just above the target.
The change in Ueda’s tone came as a surprise to some analysts. One theory about what they see as a sudden shift is that BOJ staff thought they would have to avoid a situation under which the chair’s proposal to leave the policy rate unchanged amid high uncertainty is voted down and a motion to raise rates wins a slight majority of five votes over four. That would be unprecedented at the BOJ but technically not impossible, given that the number of board members calling for an immediate rate hike increased to three at the last meeting in April from two in the recent past (the board decision to adopt a negative interest rate policy in January 2016 was made in a tight 5-to-4 vote, a rare case of so many BOJ board members dissenting at the same time).
The bank’s baseline scenario is that if the tensions in the Middle East gradually ease and the underlying inflation rate gradually rises toward 2% amid moderate economic growth, the BOJ will continue adjusting interest rates higher, Ueda said, repeating the official line.
“But even if the outlook remains uncertain, if we determine that the risk of inflation rising exceeds the risk of the economy weakening, we believe it is necessary to thoroughly discuss whether to raise interest rates,” he concluded.
The board will also conduct its annual review on the pace of tapering the bank’s purchases of Japanese government bonds that was first decided in July 2024. It will set a guideline for its JGB purchase amounts for fiscal 2027 that ends in March 2028. The focus is on whether the bank will continue reducing JGB purchases by ¥200 billion a quarter, the same as now, as part of the process of unwinding its large-scale monetary easing that lasted for nearly a decade until March 2024.
In a May meeting with BOJ officials, many bond market participants urged the bank to maintain the current pace of reduction in order to improve market functions further while some argued that no more reduction in bond purchases would be necessary in fiscal 2027.
For the rest of fiscal 2026, the board is expected to maintain the June 2025 decision to reduce its JGB buying by about ¥200 billion a quarter so that the monthly purchase amount will fall to around ¥2.1 trillion in March 2027, down from ¥5.7 trillion in July 2024.
Among key data releases for the week, May trade data is expected to confirm that exports are propped up by economic recovery in Europe and a pickup in U.S. and Chinese demand after recent drops. Machinery orders are seen flat with a slight drop in April after a slump in March as some firms may have delayed their capital investment plans amid geopolitical uncertainty. Consumer inflation is projected to remain tame under the BOJ’s 2% target, thanks to fuel subsidies, free high school education and slower processed food price markups after a spike in early 2025.
Tuesday, June 16
c.1130 JST (c.0230 GMT Tuesday, June 16/c.2230 EDT Monday, June 15) The Bank of Japan releases the outcome of its two-day policy board meeting chaired by Deputy Governor Ryozo Himino. Governor Kazuo Ueda will miss the meeting for medical treatment and will not vote.
At its last meeting on April 27-28, the BOJ’s nine-member board decided in a 6 to 3 vote to leave the target for the overnight interest at 0.75% after holding it steady in an 8 to 1 vote at its previous meetings in March and January. All of the three members called for a 25-basis point rate hike. It is the largest number of votes against the chair’s motion since Ueda took office in April 2023. He told a post-meeting news conference that he was taking it seriously.
Tuesday, June 16
1530-1615 JST (0630-0715 GMT/0230-0315 EDT Tuesday, June 16) BOJ Deputy Governor Shinichi Uchida holds a news conference to discuss the board’s decision in place of Ueda.
Wednesday, June 17
0850 JST (2350 GMT/1950 EDT Tuesday, June 16) The Ministry of Finance releases May trade.
Mace News median: exports +14.8% y/y (range: +10.7% to +19.0%) vs. +14.8% in April; imports +12.5% y/y (range: +9.9% to +16.6%) vs. revised +9.8% in April from 9.7%; trade deficit ¥559.60 billion (range: a deficit of ¥660.00 billion to a deficit of ¥348.70 billion) vs. a ¥299.27 billion surplus in April, revised from ¥301.90 billion; ¥662.47 deficit in May 2025
Japanese export values are forecast to rise 14.8% on the year in May for a ninth straight rise on continued solid demand from Europe and a pickup in shipments to the key U.S. and Chineses markets as the economy has weathered the impact of stiff U.S. tariffs on the auto industry. Exports rose 14.8% in April to ¥10.5 trillion, the second-highest level on record, after having climbed 11.5% to a record high of ¥11.0 trillion in March. The April increase was led by computer chips, non-ferrous metals and engines, roughly as seen in recent months.
Import values are expected to mark their fourth straight rise, up 12.5%, after rising a revised 9.8% in April, which reflected higher purchases of computer chips, refined petroleum products and non-ferrous metals. Domestic industrial production has been hit by shortages of naphtha, an oil product, and other key materials.
The April trade data showed import volumes dipped 3.4% and import values of crude oil plunged 49.9%. Japanese refineries are bringing more crude oil from the United States and other producers to partly offset the impact of the effective blockade of the Strait of Hormuz during the Iran war, which has slashed Gulf state oil production and exports.
The trade balance is estimated to be a deficit of ¥559.60 billion, the first negative figure in four months, after posting a revised ¥299.27 billion surplus in April. It compares with a ¥662.47 deficit in May 2025.
Wednesday, June 17
0850 JST (2350 GMT/1950 EDT Tuesday, June 16) The Cabinet Office releases April machinery orders.
Mace News median: core orders -0.3% m/m (range: -2.0% to +6.5%) vs. Mar -9.4%; +9.9% y/y (range: +8.5% to +17.4%) vs. Mar +5.9%
Japan’s core machinery orders, a key leading indicator of business investment in equipment and software, are expected to be nearly flat in April, down a slight 0.3% on the month, after slumping 9.4% in March in payback for a 13.6% jump on one-off large orders in February.
The lingering Mideast conflict appears to have prompted some firms to delay their plans to upgrade their factories and offices but the data is also expected to point to continued gains in orders for computers, reflecting the need to digitize operations to cope with labor shortages and strong demand for artificial intelligence data centers.
The Cabinet Office is expected to maintain its assessment that machinery orders are “showing signs of a pickup.”
Thursday, June 18
1600 JST (0700 GMT/0300 EDT Thursday, June 18) The Bank of Japan releases the May real trade indexes.
The real export index fell a seasonally adjusted 2.8% on the month in April, hit by declines in intermediate goods (parts and materials) and autos and auto parts. It followed a 0.9% rise in March and a 3.0% drop in February. The index dipped 3.1% on the January-March quarter, when it gained 2.2% from the previous three-month period.
Friday, June 19
0830 JST (2330 GMT/1930 EDT Thursday, June 18) The Ministry of Internal Affairs and Communications releases May CPI.
Mace News median: total CPI +1.5% y/y (range: +1.4% to +1.6%) vs. Apr +1.4%; core CPI (ex-fresh food) +1.4% y/y (range: +1.4% to +1.5%) vs. Apr +1.4%; core-core CPI (ex-fresh food, energy) +1.9% y/y (range +1.7% to +2.0%) vs. Apr +1.9%
Japan’s consumer inflation is expected to remain subdued in May, below the Bank of Japan’s 2% price stability target, thanks to fuel subsidies aimed at easing the impact of the Mideast conflict as well as free high school education that took effect in April. Processed food price hikes continued slowing after serious domestic rice shortages were resolved last year.
Residents in the Tokyo metropolitan area are also benefiting from a four-month program to wave base city water charges during the summer, from May for some households and June for others. Free daycare services in Tokyo are also helping to slow overall inflation.
The year-on-year increase in the core CPI (excluding fresh food) is forecast at 1.4% after decelerating sharply to the rate in April from an unexpectedly high 1.8% in Mach. The Iran war drove the national average regular gasoline price to a record high in mid-month in March, just before renewed subsidies took effect to cap fuel price markups. The recent core rate is the slowest since +0.8% seen in March 2022.
The annual rate of the total CPI is projected at 1.5%, little changed from 1.4% in April and 1.5% in March. The recent total CPI inflation is also the smallest gain since March 2022, when it was 1.2%, which was followed by a spike to 2.5% a month later (the core CPI rose 2.1%) as the world felt the full impact of Russia’s invasion of Ukraine that triggered a surge in energy and commodities prices amid supply disruption concerns.
Underlying inflation, as measured by the core-core CPI that exclude fresh food and energy, is seen at 1.9% after easing to 1.9% in April from 2.4% in March. It is well below the recent peak of 3.4% reached in June 2025.
Producer price data for May released earlier this month showed the year-on-year increase in import costs slowed thanks to a firmer yen in the wake of rounds of currency market intervention by Japan’s Ministry of Finance to sell dollars aimed at preventing the yen from depreciating sharply. This may not be reflected in the May CPI data but will probably provide a temporary relief to some retailers.