Markets
Bank of Japan governor Ueda’s press conference contrasted with the hawkish hold coming out of the split vote and the new monetary policy rate. Three out of nine BoJ-members voted to raise the policy rate by 25 bps to 1%, up from only one in March. CPI ex fresh food forecasts faced upward revisions for FY 2026 and FY 2027, from respectively 1.9% to 2.8% and from 2% to 2.3%. The first projection for FY 2028 stands at 2%. Core CPI (excluding fresh food and energy) is now seen at 2.6% (from 2.2%), 2.6% (from 2.1%) and 2.2%. Upside risks remain. While Ueda suggested that the price acceleration would last longer than the economic slowdown, he failed to provide a clear-cut path for a June rate hike. It’s an open secret that the central bank closely communicates with the government, but Ueda stressed independence. PM Takaichi is an open supporter of the Abenomics combo of both stimulative fiscal and monetary policy. A rate hike (towards neutral) is possible if the economy doesn’t have a big slowdown. New GDP forecasts only faced a downward revision for the current fiscal year, from 1% to 0.5%, with projections for the next two years at 0.7% and 0.8%. The market implied probability for a June move by the BoJ remained unchanged at 65%. JPY reversed small initial gains during Ueda’s presser, rebounding back from 159 to 159.80.
The ECB’s March consumer expectation survey grabbed attention. Median expectations for inflation over the next 12 months spiked from 2.5% to 4% (vs 2.8% consensus), the highest level since October 2023 and to be compared with a 5.8% peak in October 2022. Expectations for inflation three years ahead, the ECB’s policy horizon, moved from 2.5% to 3% (vs 2.6% consensus). Since the start of the survey early 2022, expectations on this horizon were only (marginally) higher in that same October 2022 month (3.1%). Inflation expectations for five years ahead ticked from 2.3% to 2.4%, a series high. After last week’s April PMI’s, it’s a second worrying signal for the ECB from a price perspective. The clock ticks against central banks with time being a (price) catalyst. Notice that this month’s developments won’t bode well for the April consumer survey. Core bond yield curve bear flattened as a result with Europe underperforming. Daily changes at the German curve currently vary between +1.5 bps (30-yr) and +6.3 bps (2-yr). At one stage, the front end of the curve gained almost 10 bps as markets embraced the prospect of a hawkish central bank reaction function. In the meantime, Brent crude prices continue to creep higher as the high stakes game-of-chicken between the US and Iran continues. Neither party wants to blink first with Iran taking energy prices hostage and the US trying to squeeze Iran’s economy. Brent crude passed the $110/b mark for the first time since April 7. The unprecedented decision by the UAE to leave OPEC and OPEC+ from May 1st only very briefly halted the uptrend. OPEC’s third biggest producer and member since 1967 is looking to raise production and chase market share, and only adds to the ongoing reshaping of energy markets caused by the US/Israeli war against Iran.
News & Views
EMU banks reported a further net tightening of credit standards for loans or credit lines to firms (net percentage of banks of 10%), the ECB’s Q1 Bank Lending Survey revealed today. The larger than expected tightening was the most pronounced since 2023Q3 and extended a trend that began in mid-2025. Perceived risks to the economic outlook and a lower risk tolerance were the main contributing factors. There was a small, in-line-with-expectations net tightening of credit standards for housing loans. Credit standards for consumer credit meanwhile tightened further and more than anticipated. Banks expect standards in all categories to become more restrictive in Q2. Firms loan demand unexpectedly decreased in Q1. Demand for housing loans was unchanged, missing expectations for growth. Consumer credit demand decreased strongly reflecting weaker spending on durable goods and lower consumer confidence. Banks see further loan demand declines across the board for Q2.
The Hungarian central bank (MNB) left the policy rate unchanged at 6.25% today. Inflation rose to 1.8% from 1.4% in March and is expected to continue to rise this year as high energy prices pass through. The MNB noted that the recently stronger Hungarian forint following the parliamentary elections and the accompanying declining risk premia would moderate the rate of inflation. It nevertheless expects headline CPI to be above the tolerance band from 2026Q3 before returning to target in 2027H2. The MNB advocates a careful and patient approach to monetary policy in light of inflation risks arising from geopolitical tensions and the uncertain financial market environment. Maintaining tight monetary conditions remains warranted in achieving price stability. The Hungarian forint trades little changed around EUR/HUF 365 with the MNB refraining from any rates guidance.
