BOJ RISK WATCH: COMMODITY AND FX COST PASS-THROUGH LIKELY TO REACH RETAIL BUYERS

The headline flags that the Bank of Japan sees commodity and currency cost pass-through as likely to reach retail buyers, signaling that input-cost increases are expected to feed into consumer prices. The transmission channel runs through the yen: a weaker currency raises the yen cost of imported energy, food, and raw materials, and firms that absorb these costs for a period tend to pass them on as businesses rebuild margins. This raises the risk of renewed inflation repricing in Japanese government bonds, where yields are sensitive to shifts in BOJ policy expectations, and of carry-trade unwinds if rate-differential assumptions change. Exposure is broadest in USD/JPY and in Japanese rate-sensitive equities such as importers and consumer-goods names, while export-oriented firms may benefit from a softer yen. The key catalyst to watch is Japan's national CPI release, particularly the core and core-core readings, which will indicate whether pass-through is broadening beyond energy and imports.

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