Australia Lifts Minimum Wage by 3.5% as Inflation Cools and Real Wages Recover

Economic

Summary:

Australia’s Fair Work Commission has approved a 3.5% increase to the minimum wage, providing a real wage gain for 2.6 million workers amid easing inflation and resilient labor market conditions....

Real Wage Growth Returns as Inflation Stabilizes

Australia’s national minimum wage will rise by 3.5% from July 1, marking a significant real income boost for low-paid workers as inflation retreats to manageable levels. The Fair Work Commission (FWC) raised the minimum hourly rate to A$24.94 (US$16.19), translating to an annual increase of approximately A$1,670 for full-time workers. This adjustment, impacting around 2.6 million employees, reflects a decisive move to restore purchasing power lost during years of elevated inflation.

This is the second consecutive annual increase in line with improving macroeconomic conditions. Last year’s 3.75% hike barely matched inflation, offering no real wage gain. By contrast, this year’s increase comes as headline CPI has cooled to 2.4% in the first quarter—well within the Reserve Bank of Australia’s (RBA) 2–3% target range and far below the 7.8% peak recorded in late 2022.

Policy Context: Wage Growth Without Inflation Risks

FWC President Adam Hatcher framed the increase as a necessary step to reverse the erosion of real income caused by past inflation shocks. He emphasized that failure to act now would lock in a lower standard of living for Australia’s lowest-paid workers. His remarks underline the Commission’s dual objectives: protecting living standards without undermining macroeconomic stability.

The RBA, which cut rates to a two-year low in May amid slowing inflation and global trade turbulence, is unlikely to view the wage hike as inflationary. Wage growth remains tepid overall, and the job market remains solid but not overheated. The unemployment rate has held steady at 4.1%, with public sector hiring driving recent employment gains. These indicators suggest that wage inflation risks remain contained.

Broader Economic and Social Implications

The wage increase is also politically and socially significant. The Australian Council of Trade Unions (ACTU) praised the decision, calling it a long-overdue reprieve for workers most affected by the post-COVID inflation surge. ACTU Secretary Sally McManus stressed that minimum-wage earners—disproportionately employed in retail, hospitality, and care sectors—are finally seeing their earnings catch up with living costs.

The broader effect on wage-setting across the economy is expected to be modest, as enterprise agreements and higher-tier wage negotiations often exceed the minimum standard. However, the decision may exert mild upward pressure on lower-tier wages, particularly in labor-intensive sectors reliant on award-based pay.

The Fair Work Commission’s 3.5% minimum wage increase marks a deliberate effort to restore real income without stoking inflation. Supported by a more stable price environment and a healthy labor market, the move enhances income equity and reinforces purchasing power at the lower end of the wage distribution. With the RBA maintaining a cautious easing bias and fiscal conditions broadly stable, Australia appears to be navigating a rare moment of wage growth with minimal inflationary downside.

Source: Reuters

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Economic

Trade War Fallout Weakens Dollar Despite Global Equity Rebound

While global stock markets have regained some footing after weeks of volatility driven by trade headlines, the US dollar has remained notably weak. On Tuesday, the dollar index touched 98.58, its lowest level since late April, reflecting investor unease over the deepening economic toll of the Trump administration’s tariff policies. The index’s recent trajectory suggests that foreign exchange markets are increasingly discounting US assets in response to persistent uncertainty.

The dollar’s decline follows Monday’s weak US manufacturing report, which showed a third consecutive month of contraction in May, coupled with worsening supply chain delays—further evidence that tariff disruptions are dragging on production. This erosion of manufacturing momentum reinforces concerns that trade friction is now having a measurable impact on the broader economy.

Currency Markets Reflect Broader Risk Repricing

Against the yen, the dollar traded near a one-week low at 142.71, while the euro held steady at $1.1446, just below a six-week high. Anticipation is building around the European Central Bank’s upcoming rate decision, but for now, the euro has benefited from the relative weakness in the greenback. Commodity-linked currencies like the Australian and New Zealand dollars outperformed, with the kiwi hitting a new year-to-date high at $0.6045—an unusual divergence from typical risk-off behavior that highlights shifting capital flows away from US-denominated assets.

According to Rodrigo Catril, senior FX strategist at National Australia Bank, the dollar is being “hammered widely” due to mounting doubts about trade resolution. The perception that tariff dynamics are worsening, not improving, is reversing any safe-haven appeal the dollar might have once had in times of global friction.

Macroeconomic Indicators Under Scrutiny

This week’s upcoming US data—particularly factory orders and nonfarm payrolls—will be critical for assessing whether the recent dollar weakness is transitory or the start of a more sustained realignment. Manufacturing softness has already pressured the greenback, and any signs of weakening in employment growth could trigger additional losses and spark fresh speculation around Federal Reserve easing, even if not imminent.

Meanwhile, last week’s brief legal victory for US tariff opponents—when a trade court blocked the majority of Trump’s tariffs—was quickly reversed by an appeals court. The administration also stated that alternative legal avenues exist to enforce the tariffs, adding another layer of unpredictability to an already opaque trade policy environment.

Fiscal Overhang Adds to Dollar Depreciation

The dollar’s weakness is not solely trade-related. Broader fiscal concerns are now compounding investor skepticism. The Senate is set to begin deliberations on a sweeping tax and spending bill estimated to add $3.8 trillion to the federal debt over the next decade, further swelling the already record-high $36.2 trillion national debt.

This growing deficit burden has fueled what market participants describe as a “sell America” sentiment—an environment where both equities and Treasurys face outflows, eroding the dollar’s comparative advantage in global portfolios. The re-pricing of US risk across asset classes suggests that the dollar is losing ground as both a growth proxy and a safe-haven asset.

The dollar’s retreat to multi-week lows underscores how deeply entrenched concerns about trade and fiscal policy have become. With manufacturing data flashing recessionary signals and legal uncertainty over tariffs resurfacing, investor confidence in the US macro outlook is fading. Unless upcoming economic indicators provide a positive surprise, the dollar may continue to face downward pressure as global capital repositions in search of stability and yield outside the US.

Source: Reuters

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Economic

RBA Weighs Risk Management Against Policy Predictability

The Reserve Bank of Australia (RBA) revealed in its May 20 meeting minutes that it seriously considered cutting interest rates by 50 basis points as a form of “insurance” against global economic uncertainty stemming from rising US tariffs. However, board members ultimately chose a more moderate 25bps cut to 3.85%, citing a preference for caution and a desire to maintain predictability in monetary policy.

The internal debate was shaped by escalating global risks, especially the Trump administration’s more aggressive-than-expected tariff strategy, which the board recognized as a significant threat to global confidence and Australian economic momentum. Nonetheless, members agreed that the domestic economy remained relatively resilient, with tight labor market conditions and inflation returning within the target range, thus not yet warranting an aggressively expansionary stance.

Domestic Resilience Counters Global Fragility

Despite subdued household consumption and external uncertainty, the RBA judged Australia’s domestic economy to be holding up, supported by robust employment and inflation data. Core inflation slowed to 2.9% in the first quarter—comfortably within the RBA’s 2-3% target band—and is forecasted to decline further to 2.6% by year-end.

These figures indicated that inflation no longer posed an immediate threat, opening the door for policy easing. However, concerns lingered over the potential need to reverse any abrupt cuts should global conditions unexpectedly improve. As such, the board preferred to maintain flexibility and avoid introducing new volatility into financial markets or consumer sentiment through an overly aggressive move.

Global Policy Uncertainty Anchors Caution

The board’s deliberation reflects a broader strategic balancing act: addressing downside global risks without undermining domestic stability. Trump’s tariff actions were identified as a central source of external risk, with implications for global growth, commodity demand, and trade flows. The RBA acknowledged that if worst-case scenarios emerged, policy rates might need to fall below the neutral threshold (estimated between 2.85% and 3.10%) to stimulate the economy.

Yet given the unpredictability of international trade policy and its indirect transmission to Australia, members leaned toward a wait-and-see approach. They explicitly favored policy moves that were “cautious and predictable” to maintain market trust and avoid unnecessary disruptions to consumer or business planning.

Market Expectations and Policy Path Forward

Futures markets are currently pricing in a roughly 70% probability of another rate cut at the RBA’s July 8 meeting. However, many economists anticipate the central bank will delay further moves until second-quarter inflation data is released later that month. This data will be pivotal in determining whether the current disinflationary trend persists or if underlying pressures remain.

Should inflation continue to decline and global trade uncertainty remain elevated, a shift toward a more expansionary stance could materialize by August. Market expectations see rates bottoming around the neutral zone, suggesting that policymakers are not yet anticipating a prolonged easing cycle but are instead preparing to recalibrate policy toward a more supportive footing if necessary.

The RBA’s May minutes underscore a delicate policy balancing act between responding to escalating global trade risks and preserving domestic economic momentum. While the central bank signaled readiness to act more aggressively if needed, its preference for stability, gradualism, and evidence-based decision-making will likely define its short-term path. The trade fallout from US-China tensions may yet prompt stronger action, but for now, the RBA is choosing caution over urgency.

Source: Reuters

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Economic

China–U.S. Trade War

Tariff Impact Deepens as PMI Signals Contraction

China’s manufacturing momentum suffered a sharp reversal in May, with the Caixin/S&P Global Manufacturing Purchasing Managers’ Index (PMI) plunging to 48.3 from 50.4 in April. This marked not only the first contraction since September 2024 but also the weakest reading in 32 months. Falling below the 50-mark, the PMI signals a downturn in business conditions, confirming that the effects of reimposed US tariffs are beginning to ripple through the Chinese industrial base.

The private-sector data aligned closely with China’s official PMI released days earlier, which also showed contraction, reinforcing the assessment that the manufacturing slowdown is broad-based and not a temporary aberration. The latest numbers point to a clear weakening in both domestic production and foreign demand, tied in large part to geopolitical friction and policy uncertainty.

Export Orders and Output Falter Under Trade Strain

One of the most direct consequences of the tariff escalation is visible in the export component of the PMI. New export orders contracted for the second straight month and at the fastest pace since July 2023. According to the survey, producers cited rising US tariffs as a key factor restraining global demand, disrupting overseas orders and extending delivery timelines.

The deterioration in export demand pulled overall new orders to their lowest level since September 2022. Factory output also fell, marking the first monthly contraction in manufacturing output since October 2023. These patterns suggest that the latest round of tariffs is producing more immediate operational consequences compared to previous rounds, which were either anticipated or partially absorbed through supply chain adjustments.

Labor Market and Price Signals Reflect Deflationary Pressures

Alongside declining orders, employment in the manufacturing sector fell at the fastest pace since early 2025, indicating rising pessimism among producers. Cost control and weaker revenue expectations are driving headcount reductions, especially in sectors facing intense price wars, such as the automotive industry.

Prolonged pricing pressure is compounding the weakness. Output prices have now fallen for six consecutive months due to intense market competition and excess capacity. This downward pressure reinforces the deflationary dynamic already visible in China’s macroeconomic data. Morgan Stanley’s Chief China Economist, Robin Xing, highlighted that the persistence of a supply-driven growth model continues to stifle rebalancing efforts and makes inflation recovery elusive.

Interestingly, export charges rose for the first time in nine months, with producers attributing the increase to higher logistics and tariff costs. This divergence—rising export prices amid falling domestic output prices—indicates that firms are beginning to pass on some of the external costs, though only selectively.

Policy and Market Outlook: Unconventional Tools on Watch

In response to these mounting pressures, Premier Li Qiang hinted last week at deploying “unconventional measures” to stabilize the industrial economy. While no details have been disclosed, such language suggests that Beijing may consider targeted fiscal incentives, credit easing, or industry-specific subsidies to soften the blow of declining factory performance and rising trade friction.

Nevertheless, the broader outlook remains fragile. While business optimism ticked up slightly, with firms expressing hopes that the trade environment will improve and markets will expand, these expectations appear to rest more on anticipation of diplomatic progress than on any structural turnaround in global demand.

China’s May factory data confirm that renewed US tariffs are beginning to inflict tangible damage on its manufacturing sector. With export orders weakening, factory output contracting, and employment declining, the latest figures highlight both cyclical and structural vulnerabilities in China’s supply-led growth model. Unless global trade tensions ease or domestic policy provides stronger support, the pathway to industrial stabilization remains uncertain—especially as geopolitical risks continue to eclipse economic fundamentals.

Source: Reuters

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Daily News

[Quick Facts]

1. Trump: Iran will not be allowed to enrich uranium in any way

2. Iranian officials say U.S. nuclear deal proposal is "inconsistent and disjointed"; U.S.-Iran negotiations may be on the verge of collapse

3. The duty-free policy is about to expire, and the EU will seek to reach a new free trade agreement with Ukraine

4. Turkish president says second round of Russia-Ukraine talks yields "significant results", proposing Russia-Ukraine-U.S. summit

5. Trump plans to lift restrictions on Arctic oil drilling imposed during the Biden administration

6. Trump asks countries to submit their "best offers" by Wednesday

7. Powell: The government must understand the impact of potential sharp fluctuations in the dollar

[News Details]

Trump: Iran will not be allowed to enrich uranium in any way

U.S. President Trump stated on social media: "Under any agreement we might make with Iran, we will not allow any enrichment of uranium!" Earlier media reports said that the U.S. had made a 180-degree turn in its policy on nuclear negotiations with Iran.

Iranian officials say U.S. nuclear deal proposal is "inconsistent and disjointed"; U.S.-Iran negotiations may be on the verge of collapse

An Iranian senior official informed CNN that the recent U.S. proposal for a new nuclear agreement submitted to Tehran in recent days is "incoherent and disjointed". Sources familiar with the negotiations suggest that the momentum behind reaching a new agreement appears to be collapsing.

The report indicates a shift in the U.S. position on uranium enrichment in the new proposal. It suggests that the U.S. could invest in Iran's civilian nuclear energy program and join a consortium to oversee low-enriched uranium activities within Iran for a period. This consortium is expected to include Middle Eastern countries and the International Atomic Energy Agency, the UN's nuclear watchdog. Iranian officials have repeatedly stated their openness to the idea of forming a uranium enrichment consortium but have insisted that Iran must maintain control over its uranium enrichment capabilities.

The senior Iranian official condemned the new proposal on Monday, stating, "At first glance, it is considered incoherent, disjointed, highly unrealistic, and demanding." The official added, "The Americans' constant shifting of positions is the main obstacle to the success of the negotiations so far, and now makes the negotiation work more difficult than ever." Informed sources indicate that the next round of negotiations is highly uncertain and may not take place at all.

The duty-free policy is about to expire, and the EU will seek to reach a new free trade agreement with Ukraine

On May 2, European Commission spokesperson Olof Gill stated that the European Union's current duty-free policy for Ukraine is set to expire on June 5. The EU is in the process of establishing transitional measures and will collaborate with Ukraine to negotiate a new free trade agreement, with the aim of upgrading to a Deep and Comprehensive Free Trade Area (DCFTA). Following the outbreak of the Russia-Ukraine conflict in 2022, the EU temporarily suspended import tariffs and quotas on Ukrainian agricultural products. However, farmers in several EU member states, including Poland and France, have voiced concerns that this policy has led to a surge in Ukrainian agricultural imports, thereby impacting their interests.

Turkish president says second round of Russia-Ukraine talks yields "significant results", proposing Russia-Ukraine-U.S. summit

Turkish President Erdoğan proposed a summit involving the leaders of Russia, Ukraine, and the U.S. to facilitate a peaceful resolution to the ongoing conflict, as stated in Ankara on the 2nd. Following a cabinet meeting, Erdoğan expressed his "utmost desire" for a meeting between Russian President Putin and Ukrainian President Zelenskyy in Istanbul or Ankara, adding that he "would even like (U.S. President) Trump to attend." Regarding the second round of direct negotiations held in Istanbul between Russian and Ukrainian delegations, Erdoğan noted that "significant progress" had been achieved. The exchange of prisoners of war between the two parties is expected to exceed 1,000 individuals.

Furthermore, the exchange of deceased soldiers' remains, involving a substantial number, is also planned. Erdoğan reiterated Turkey's clear stance since the conflict's inception, emphasizing its opposition to conflict, combat, war, and oppression in the region. Turkey is "sincerely striving to establish a sustainable peace acceptable to both sides."

Trump plans to lift restrictions on Arctic oil drilling imposed during the Biden administration

The Trump administration is poised to rescind the Biden-era restrictions on oil drilling across a significant portion of the National Petroleum Reserve-Alaska (NPR-A). The NPR-A is estimated to hold 8.7 billion barrels of recoverable oil. Interior Secretary Doug Burgum unveiled the proposed policy shift during a town hall meeting in Utqiagvik, a village on the Chukchi Sea coast, last Sunday. He and other members of the current presidential cabinet are visiting Alaska to promote energy development in the region.

This initiative will unlock new opportunities for oil and gas exploration and production within the 23-million-acre NPR-A. The move is a response to a directive issued by Trump following his January inauguration, where he signed an executive order mandating a series of policy changes aimed at expanding oil, gas, and mineral development in Alaska. According to a 2017 assessment by the U.S. Geological Survey, the reserve is estimated to contain 8.7 billion barrels of recoverable oil.

Trump asks countries to submit their "best offers" by Wednesday

According to a letter reviewed by Reuters, the Trump administration is requesting that countries involved in high-level tariff negotiations submit their "best and final offers" on trade talks by Wednesday. This action comes as the White House seeks to expedite trade negotiations before the July deadline.

The document reveals a sense of urgency within the U.S. government to finalize deals within a tight timeframe. Despite repeated assurances from officials like White House economic advisor Hassett that multiple agreements are nearing completion, the U.S. has only reached one agreement with a major trading partner (the UK) to date. Even this limited agreement functions more as a framework for ongoing negotiations rather than a final accord.

The letter states that the U.S. expects countries to outline their best proposals across several key areas, including tariff and quota preferences for industrial and agricultural product purchases, as well as plans for non-tariff barriers. The letter also indicates that the U.S. will assess the responses within days and present a "range of possible solutions," which may include reciprocal tariff rates. It remains unclear which specific countries the letter will be sent to, but the target is those currently engaged in active negotiations. The U.S. is reportedly in active negotiations with the European Union, Japan, Vietnam, and India, among others.

Powell: The government must understand the impact of potential sharp fluctuations in the dollar

In his opening remarks at an event, Federal Reserve Chair Powell stated that the Federal Reserve needs to further understand the policies and practices of other governments and central banks, and their impact on the U.S. economy and financial markets. Exchange rate policy is currently the responsibility of the U.S. Treasury. However, the end of the Bretton Woods system in the 1970s fundamentally altered the implementation of monetary policy, as policymakers must understand the impact of potential, more significant fluctuations in the dollar on American households and businesses. It is reported that Federal Reserve Chair Powell did not comment on monetary policy or the economic outlook.

U.S. announces 50% increase in steel and aluminum tariffs; EU expresses deep regret and will continue negotiations

On June 2nd, a European Commission spokesperson expressed the EU's profound regret regarding the U.S.' announcement to increase tariffs on steel and aluminum from 25% to 50%. This decision exacerbates economic uncertainty across the Atlantic. The spokesperson noted that negotiations are ongoing, with both parties agreeing to expedite the process, including meetings this week. EU Trade Commissioner Šefčovič is scheduled to meet with U.S. Trade Representative Greer in Paris on June 4.

[Today's Focus]

UTC+8 11:05 RBA Assistant Governor Hunter Speaks

UTC+8 14:30 Swiss CPI in May

UTC+8 15:50 BOJ Governor Kazuo Ueda Speaks

UTC+8 17:00 Eurozone HICP in May

UTC+8 22:00 U.S. JOLTs Job Openings in April

Pending Election in South Korea

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Economic

Investors Tread Carefully Ahead of Trump-Xi Call

Asia-Pacific equity markets edged higher on Tuesday in a hesitant rebound, while the dollar softened further, reflecting investors' unease ahead of a potential phone call between US President Donald Trump and Chinese President Xi Jinping. This anticipated conversation, intended to address rising trade tensions, comes after Trump accused Beijing of violating the Geneva tariff rollback agreement. The lack of clarity surrounding China’s response continues to weigh on investor sentiment.

According to White House Press Secretary Karoline Leavitt, the leaders are expected to speak this week, though Chinese officials have yet to confirm the engagement. With markets highly sensitive to trade headlines, the tone and outcome of this call could either stabilize or further unsettle global markets.

Manufacturing Weakness Reflects Tariff Impact

Recent data from both the US and China reveal the material toll that escalating tariffs are taking on global production. The US ISM manufacturing index showed contraction for a third consecutive month in May, with manufacturers citing slower activity, declining inventories, and longer lead times. Wells Fargo analysts highlighted that tariff pressures are beginning to weigh more significantly on domestic supply chains.

Similarly, China’s private-sector PMI recorded a contraction for the first time in eight months, underlining the broader slowdown in Asia's industrial engine. These figures reinforce concerns that trade friction is now translating into tangible production losses across key economies.

Global Equities Show Tentative Recovery

Despite the bleak trade backdrop, some regional markets posted modest gains. The MSCI Asia-Pacific index ex-Japan rose 0.6%, with Japan’s Nikkei up 0.66%. Hong Kong’s Hang Seng Index led the region with a rebound of over 1% after a sharp decline on Monday. Mainland Chinese markets remained subdued, with the CSI300 up just 0.23%.

US futures were less optimistic. Nasdaq and S&P 500 futures both declined 0.2% in early Asian trading, indicating a cautious start on Wall Street. European futures, by contrast, posted slight gains, suggesting divergent sentiment between regions as markets await further developments.

Dollar Drops to Six-Week Low Amid Policy Uncertainty

The US dollar index slid to 98.58—its weakest level in six weeks—as traders reduced exposure ahead of Friday’s nonfarm payrolls report. The euro touched a six-week high before retreating slightly to $1.1426, while the British pound slipped to $1.3532. These currency moves reflect a growing belief that US economic data may soon weaken enough to reintroduce Federal Reserve rate cut expectations, even though investors currently see limited scope for easing in the near term.

The yen, often seen as a haven asset, partially reversed recent gains, with the dollar rising 0.35% to 143.20 yen. Bank of Japan Governor Kazuo Ueda emphasized the need for flexible policy decisions amid ongoing trade and geopolitical uncertainty, reinforcing the BOJ’s cautious stance.

Fiscal Policy and Treasury Markets in Focus

Concerns over the expanding US fiscal deficit also weighed on sentiment. The Senate is expected to begin deliberations on a new tax-and-spending package that could increase federal debt by $3.8 trillion. In response, long-term Treasury yields remain elevated, with 30-year yields hovering near 5%. Analysts from Mizuho noted that term premiums are being re-evaluated to reflect fiscal and geopolitical risks, as well as the threat of dollar debasement.

In commodities, oil prices rose modestly on supply concerns. Brent crude futures advanced 0.88% to $65.20 per barrel, while WTI crude climbed 1% to $63.13. Gold continued its upward trajectory, hitting a one-month high of $3,392.03 an ounce, reflecting strong haven demand driven by trade and geopolitical instability.

Markets remain in a fragile state, driven by headline risks and policy ambiguity. The anticipated Trump-Xi call will be a key catalyst for sentiment, as investors look for signs of de-escalation or further confrontation. Meanwhile, weak manufacturing data and a looming US payroll report will shape expectations for monetary policy and economic resilience. Until clearer direction emerges, price action will likely remain volatile and reactive, with gold and Treasurys continuing to serve as investor refuges.

Source: Reuters

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Christopher Hayes

The Bank of Japan will probably decide to stop reducing the amount of its government bond purchases in a plan for next fiscal year when authorities gather this month, as they eye a worrisome surge in JGB yields, according to a former BOJ board member.

Since last summer, the bank has been reducing its buying of government bonds by ¥400 billion ($2.8 billion) every quarter, but that process will come to a halt, former board member Makoto Sakurai said in an interview Monday in Tokyo.

“They are likely to make a stop,” Sakurai said. “They must be considering that yields will rise further if they go big on cutting bond purchases.”

Sakurai was speaking two weeks before the BOJ extends its current bond purchase plan into the fiscal year from April. Traders have been looking for hints regarding the likely pace of pullback, with BOJ watchers holding mixed views on what the optimum rate should be. A recent surge in super-long bond yields reflects the challenges for authorities pursuing a quantitative tightening path.

“It’s probably the most reasonable solution to halt for now and then mull it over later,” Sakurai said. “It’s a little risky to make a long-term commitment” when uncertainties are this high, he said.

Owing largely to US President Donald Trump’s tariff measures, the murky economic landscape is likely to keep Governor Kazuo Ueda’s board on hold, with the policy rate at 0.5%, until toward the end of this year, Sakurai said. Prior to any move higher, the central bank would need to confirm the resilience in business investment as well as how much room companies have to raise wages next year. Those data won’t be available until autumn, he said.

Sakurai’s forecast is more or less in line with the market’s. Traders see around a 70% chance of borrowing costs rising by the end of this year, according to overnight index swaps Monday.

“October seems a bit too early, but I wouldn’t rule it out,” Sakurai said. “It all depends on the data.”

The BOJ’s nine-member board next sets policy on June 17. A key focus will be on whether the central bank will continue to reduce the amount of government debt buying every three months from the second quarter of next year. At the current pace of cutbacks, monthly bond buying would slide to around ¥2.9 trillion by March.

At the BOJ’s hearings with bond market participants last month, there were diverse views on the right tempo to cut back debt buying in the future. One participant called for more aggressive cuts to purchases, while another urged that reductions be suspended temporarily, according to minutes of the gatherings released Monday.

The nation’s 30-year yield has come down to around 2.95% from 3.185% hit late last month, its highest since the tenor’s inception. Still, Japan’s bond market faces more challenges with debt sales later Tuesday and Thursday that may ramp up pressure on the government to adjust its borrowing plans and calm investor nerves.

Sakurai expects Japan’s yields to stay elevated, causing concerns at the Ministry of Finance over its implications for Japan’s finances. The government’s cost for debt servicing rose to about a quarter of its budget for this fiscal year, thanks partly to higher interest rates.

“They must be feeling that a higher yield could be problematic,” Sakurai said. “It’s not easy to proceed with further cutback in bond purchases for the BOJ.”

The BOJ remains the biggest holder of Japanese government debt, owning roughly half of the market after more than a decade of aggressive monetary easing. The bank began quantitative tightening last summer, five months after scrapping its negative interest rate and yield curve control program.