Institution: The Bank of Japan faces the challenge of balancing inflation and economic growth

ChainCatcher news, IG Group analysts indicate that the Bank of Japan (BOJ) faces the challenge of balancing persistent inflationary pressures with slowing economic growth. The price of rice, a staple food for Japanese households, has doubled in the past year, highlighting the severity of inflationary pressures.

Since April 2022, the core inflation rate has remained at or above the BOJ's 2% target, increasing pressure for interest rate hikes.

However, economic growth has clearly deteriorated, with first-quarter GDP contracting at an annualized rate of 0.2%. Additionally, due to rising inflation, real wages have fallen by 1.8% year-on-year, which may suppress consumer spending and further constrain economic growth. While the BOJ is likely to keep interest rates unchanged at today's meeting, any hawkish guidance could provide significant support for the yen. Close attention should be paid to the policy statement and comments from the press conference for hints regarding future tightening measures.