#Tokyo #Inflation Report to Set the Scene for Next Week’s #BoJ Meeting (25 OCT 2023)

• Tokyo inflation details will be released on Thursday 23.30 GMT

• Market prepares for the next BoJ gathering as geopolitics affect sentiment

• A strong set of data could offer some short-term respite to the yen

Market prepares for the next BoJ meeting

With only a few days left until the next Bank of Japan meeting, the market is trying to evaluate the impact of geopolitical developments. An escalation in the Middle East would most likely unsettle global markets and cause another rally in oil and gas prices, similar to the 2022 episode that fueled the elevated inflation rates.

To be fair, the BoJ might not strongly complain about another inflation surge, provided it does not hamper Japan’s growth outlook. This looks quite difficult to achieve considering the amount of oil imported annually and the associated cost. However, an inflation jump would most likely result in stronger wage increases going forward, like the ones agreed during the 2023 negotiation round; this is key for most BoJ members in order to finally support the gradual reduction of the current accommodation provided by the BoJ.

Rumours for another YCC tweak

There have been rumours lately that the BoJ is considering another tweak in its yield curve control (YCC) programme. The Japanese 10-year yield is trading around 0.85%, the highest level since the distant 2013, mostly due to the upside pressure from surging US yields. While there does not appear to be strong support for such a YCC change, a tweak announcement could be used as a signal that the BoJ is aiming for a tighter monetary policy stance.

Wages are critical but the Tokyo inflation release is coming up next

Until the 2024 wages discussion gets underway, the BoJ members will have to be content with the inflation reports and earnings prints. The latest figures for the latter, in the form of the labour cash earnings, have not been exciting so the burden falls on inflation data for some positive news for the BoJ. In this context, the Tokyo print for October will be pushed on Thursday evening (23.30 GMT).

Tokyo’s headline CPI has dipped below the 3% threshold over the past two months with the national headline figure mimicking this move. More importantly, the core CPI indicator – excluding food and energy – remains elevated, pleasing certain BoJ members. Looking ahead to Thursday’s release, a small pickup in inflation rates, on the back of higher oil prices feeding through the system over the past month, would make sense.

Yen at multi-year highs across the board

It has been a brutal year for yen bulls as the underperformance against the key global currencies has reached double digits. However, there have been some muted signs of life from the yen lately, for example the pound-yen pair. This is mostly the result of intervention threats, but the divergent rhetoric of the two respective central banks has probably been a factor as well.

Having said that, an upside surprise in Thursday’s data could result in a small downleg below the 181.42-182.32 area, but this move would most likely prove to be short-lived. On the flip side, a weak inflation report would cause a smaller market reaction higher as the intervention threat remains at large.

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#BoJ Reaffirms Policy,#Yen at 136 (29 June 2022)

Kuroda pledges to maintain easy policy

The Japanese yen is one of those currencies that keeps investors on its toes, and it has certainly lived up to its billing in recent weeks. USD/JPY has shot up 5.79% in the month of June and is back above the 136.00 line. BoJ Core CPI, the central bank’s preferred inflation gauge, ticked upwards to 1.5% in May, up from 1.4% prior and matching the forecast.

There is no mystery behind the yen’s sharp depreciation of some 17% in 2022. The currency has been at the mercy of the US/Japan rate differential, which has continued to widen. The Federal Reserve is in the midst of an aggressive rate-tightening cycle, with the Fed delivering a massive 0.75% increase at its last meeting. The Bank of Japan continues to take an opposite approach, that of an ultra-accommodative policy. The BoJ has maintained this stance at a time when other central banks are tightening, in order to boost the fragile Japanese economy. While other major economies are struggling with surging inflation, Japan’s inflation is around 2% – quite low but nonetheless on the rise after some 15 years of deflation.

Governor Kuroda reiterated on Wednesday that the BoJ would maintain accommodative policy, insisting that the increase was mostly a result of higher energy prices. Kuroda has said in the past that the present bout of inflation is temporary and that the BoJ would not change policy until inflation was anchored by higher domestic demand and an acceleration in wage growth. With neither of those criteria likely to occur anytime soon, we can expect the BoJ to continue to tenaciously defend its yield curve control and do little more than jawbone about the exchange rate. This does not bode well for the yen, which could continue its sharp slide and fall below the 140.00 line.

USD/JPY Technical

• USD/JPY faces resistance at 1.3654 and 1.3785
• There is support at 1.3540 and 1.3409

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#Yen Ticks Higher after #BoJ Inflation (28 June 2022)

Inflation is slowly moving higher

The phrase “surging inflation” is in the financial press on a daily basis, as the major economies grapple with what has become public enemy number one. Japan, however, does not come to mind as a country dealing with high inflation, and indeed inflationary pressures there are much more modest than what we’re seeing elsewhere. Still, given that Japan was dealing with deflation for decades, the fact that inflation has moved above the Bank of Japan’s target of 2% is a significant development.

Last week, Japan’s Core CPI for May came in at 2.1% YoY, matching the April reading. The last time Core CPI was above 2.0% was back in 2015. Earlier today, BOJ Core CPI, the central bank’s preferred inflation gauge, came in at 1.5% in May, up a notch from the 1.4% in April. Next up is Tokyo Core CPI on Friday, which is expected to rise to 2.1%, up from 1.9%. The inflation sands have dramatically shifted – just 13 months ago, Tokyo Core CPI was in negative territory.

The BoJ wants to see higher inflation, but has argued that the current cost-push inflation is temporary, since it is driven by higher food and fuel prices. Governor Kuroda has insisted that the BoJ’s ultra-loose policy will not change until inflation is boosted by increased domestic demand and stronger wage growth. As part of this stance, the BoJ has vigorously defended its yield curve control and capped the yield on the 10-year JGB at 0.25%.

The BoJ’s yield curve control has come at a steep price for the Japanese yen, which has plunged around 17% in 2022 and recently fell to a 24-year low. The burning question facing investors is will the BoJ retreat and abandon its 0.25% cap in order to stabilize the currency. On a broader level, the BoJ finds itself out of line with other major central banks, which have embarked on an aggressive rate-hike cycle in order to curb inflation. Will the BoJ make adjustments to its ultra-loose policy? If so, the long-suffering yen could get a boost.

USD/JPY Technical

• USD/JPY tested resistance at 1.3540 earlier in the day. Above, there is resistance at 1.3654
• USD/JPY has support at 1.3409 and 1.3295

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