On Thursday, the minutes of the Bank of Japan（BOJ）'s April meeting were released, but there were many hawkish views in the meeting.

BOJ board turned hawkish

The minutes of the BOJ meeting (25-26) released on Thursday showed that some members believe that due to sustained inflation or even exceeding the BOJ2% target, the rate of interest rate increase may be faster than current expectations.

Some members have stated, "If underlying inflation continues to deviate from the benchmark scenario against the backdrop of a weakening yen, the pace of monetary policy normalization is likely to accelerate."

At the April meeting, BOJ maintained interest rates close to zero and released a new quarterly forecast, predicting that the inflation rate will remain around 2% in early 2027.

In the latest summary, some members suggested that BOJ should consider moderate interest rate hikes to avoid being forced to raise interest rates in a "discontinuous and rapid" manner after achieving sustainable price targets.

This view has been supported by many members, with some members stating that as the likelihood of achieving economic growth and price forecasts increases, BOJ must raise interest rates "in a timely and appropriate manner." The market expects BOJ to raise interest rates later this year.

The minutes of this meeting indicate that the committee members collectively set off eagles without warning.

Earlier this week, BOJ President Kazuo Uchida suddenly became tough on the weak yen and pointed out that the weakness could lead to interest rate hikes. This is in stark contrast to his remarks last month, when he did not show a sense of urgency.

However, the hawkish signal from the Bank of Japan failed to support the yen, and shortly after the minutes were released, USD/JPY briefly touched 155.17, with trading at around 155.50 on Thursday morning.

Another key topic of this meeting is the path of bond purchases, as BOJ owns about half of Japan's outstanding government bonds. Before the meeting, the market speculated that BOJ may announce a reduction in its bond purchase plan to alleviate the downward pressure on the yen.

Although BOJ no longer purchases ETFs from the market, it still purchases Japanese government bonds worth approximately 6 trillion yen per month and delays the sale of bonds or ETFs.

According to the latest minutes, BOJ still maintains the same scale of bond purchases and reiterates that bond purchases are no longer a policy tool.

Observing the policy path of BOJ inevitably requires considering the latest developments of the Federal Reserve. Last week's Federal Reserve policy meeting and the unexpected downturn in US employment growth have increased the market's bet on two interest rate cuts this year. There is still a gap between Japan's ultra-low yield and the United States.

Masafumi Yamamoto, Chief Foreign Exchange Strategist at Mizuho Securities, said, "The market is not really worried about a sudden shift by the Federal Reserve. Therefore, in this sense, the market is biased towards the upward space of the USD/JPY."Yamamoto added that traders remain cautious about potential currency intervention in Tokyo, and as the US dollar slightly rises, it may trigger some intense "tension trends" that could lock the USD/JPY in the 155-160 range.

Japan's real wages continue to fall in March

In addition to the meeting minutes of the central bank, the Japanese Ministry of Health, Labour and Welfare also released the latest wage data on Thursday. Official data shows that Japan's real wages, adjusted for inflation, decreased by 2.5% year-on-year in March, marking the largest decline in four months and the 24th consecutive month of decline.

The nominal wage, which refers to the average total cash income of workers, increased by 0.6% to 301193 yen, which is slower than the growth rate of 1.4% in February and lower than market expectations.

In total cash income, regular wages, which determine basic wages, increased by 1.7%, while overtime wages decreased by 1.5%, marking the fourth consecutive month of decline.

In addition to wages, bonuses and other benefits recorded a year-on-year decrease of 9.4% in March, exacerbating the slowdown in nominal wages. The data on full-time workers who avoided sampling issues and excluded bonuses and overtime pay increased by 2.3%. This index is one of the closely monitored data by BOJ, which has remained above 2% for the seventh consecutive month, indicating stable growth in basic wages.

"This time, bonuses have had a significant impact on the data, but scheduled wages are stable, and I believe wages are on an upward trend." Harumi Taguchi, Chief Economist of Global Market Intelligence at S&P, said, "I expect actual wages to turn positive in the second half of this year."

Some economists also indicate that actual wages are expected to become regular at some point in the 2024/25 fiscal year.

On the other hand, consumer prices in Japan increased by 3.1% year-on-year in March, slightly slower than the 3.3% in February and still higher than the BOJ2% inflation target. This indicates that the income of workers still lags behind the rise in costs, highlighting the challenges faced by policymakers in making businesses raise wages.

In this year's annual labor negotiations, large Japanese companies proposed to increase the monthly wages of workers by more than 5%, the largest increase in nearly 30 years. According to a report by BOJ, these increases will gradually be reflected in worker wages in the second and third quarters of this year.

However, small and medium-sized enterprises have not been able to keep up with large enterprises in terms of salary increases, which has hindered the pace of wage increases. In Japan, small and medium-sized enterprises employ about 70% of full-time employees nationwide. In addition, about 40% of the labor force in Japan is low paying informal workers.

The weak wage growth has dampened the expectations of policymakers to achieve benign economic growth driven by persistent inflation and stable wages, which is considered a prerequisite for the normalization of monetary policy.