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.

Today's first estimate of Q4 GDP was strong. The big contribution came from service exports, but the surprise was the resilience of consumption, with the backdrop being another decent rise in real compensation.

Naoki Tamura is a relative hawk at the BOJ. While that doesn't make him mainstream, his speech today is still worth reading, because it is direct and well-reasoned, and because an upside surprise in inflation and rates is a very reasonable scenario for 2025.

Full-time worker wage growth remains stable at a bit under 3%. Further acceleration is likely, though not much: this year's shunto will probably moderate from 2024. Part-time worker wage growth is though continuing to rise, consistent with the BOJ's view of a tight labour market.