It has been a quiet week for the Japanese yen, but USD/JPY is showing some strength on Thursday and has pushed above the 137 line for the first time this year.
Will Tokyo Core CPI continue to rise?
Japan’s inflation indicators have continued to point upwards. We’ll get a look at Tokyo Core CPI for February later today. This key indicator has accelerated for eight straight months and hit 4.3% in December, its highest level since May 1981. The upward trend is expected to continue, with an estimate of 4.5%. A reading below expectations would not be a total surprise, as the government fuel subsidies took effect in February and could be reflected in the inflation release.
These inflation levels may be the envy of other developed countries, but they are causing serious distress in Japan, which had a deflation problem for decades. The Bank of Japan has insisted that inflation is transient, an echo of what the Fed and ECB were preaching before they threw in the towel and hiked rates in a massive fashion. As inflation continues to rise, there is growing pressure on the BoJ to ease up on its ultra-loose policy.
The BoJ, which has its hands full with rising inflation, is in the midst of a sensitive leadership transition. Kazuo Ueda will take over from Haruhiko Kuroda next month. Ueda has stressed continuity at his confirmation hearings, saying that the central bank’s current policy is appropriate. Nevertheless, the markets aren’t convinced that Ueda will take his time before making any changes in policy. The Bank’s yield curve control policy has damaged the bond markets and there is concern that if Ueda stands on the sidelines at the April meeting, the result could be a massive selling of bonds. Just to add to the drama, there is speculation that Kuroda could tweak policy at his final policy meeting on March 10 in order to relieve the pressure on Ueda.
- There is resistance at 137.37 and 138.24
- 135.65 and 134.78 are providing support