The themes in the Tankan are quite clear: labour market tightness, and rising inflation pressure. Price pressures are most obvious in the services sector, which makes sense, when this is more labour-intensive than manufacturing.

The Tankan showed another rise in price pressures, particularly in non-manufacturing, the sector where labour market conditions are also the tightest and sentiment the strongest. The details of Trump's plans could change things, but domestic dynamics keep the BOJ on track to hike again.

As would be expected, the summary of the March MPC meeting shows more concern about US policy. But this isn't a repeat of summer 2024 when the BOJ got cold feet on new rate hikes. Inflation data remain solid, and the meeting talked about upside risks for prices, driven by domestic factors.

Today's shunto 2025 results are constructive, but not a game changer. Upside risks from other dynamics are bigger: part-time wages, the output gap, inflation expectations, processed food prices, rent, and pent-up inflation pressure in both PPI and public services prices.

Today's Q1 BOS survey shows the labour market still tight, giving a flavour for the early April Tankan. February PPI inflation eased, but the break with the YoY change in import prices is sustaining. That suggests PPI is being driven by the accumulated rise in import prices since 2021.

The standout finding from this year's annual corporate survey from the Cabinet Office is the continued rise in nominal growth expectations. The five-year outlook is now almost at 3%. This is another clear sign of a rise in inflation expectations, with real growth expectations not changing at all.

Underlying pay continues to rise around 3% for regular workers and 4.5% for part-time. But bonuses and real wages were lower in January, and consumers continue to complain about rising prices. Household sentiment fell in today's EW survey, and that points to weaker activity in Q1.

Deputy governor Uchida's speech this week marked the third occasion since January where the bank has argued that the output gap is understated. That suggests more upwards pressure on prices, and thus rates. He also staked out a more positive view of QQE than the BOJ's formal view.

The fundamental inflation story of labour market tightness and wage hikes was seen in today's firm services PMI. But both the PMI and CPI today suggest that dynamic has again been overtaken by prices driven by supply shortages, a phenomenon that is clearly bad for real incomes and so consumption.