Yen Slightly Declines, Tokyo Core CPI in Focus
The Japanese yen had a quiet week, but on Thursday, USD/JPY started to gain momentum and moved above the 137 level for the first time this year.
Will the Tokyo Core CPI keeps rising?
The inflation indicators for Japan have remained positive. Later today, we'll look at the February Tokyo Core CPI. This important metric has been increasing for eight months running, reaching 4.3% in December, its highest level since May 1981.
Estimated at 5%, the upward trend is anticipated to continue. Given that the government's fuel subsidies went into effect in February and could be reflected in the inflation release, a reading below expectations would not come as a complete surprise.
These inflation rates may be the envy of other developed nations, but in Japan—which had a deflation issue for decades—they are causing grave distress. The Bank of Japan has insisted that inflation is temporary, echoing the Fed and ECB before they gave up and dramatically raised interest rates. There is increasing pressure on the BoJ to modify its ultra-loose policy as inflation rises.
The BoJ is going through a delicate leadership transition as it struggles to control rising inflation. Next month, Kazuo Ueda will succeed Haruhiko Kuroda. At his confirmation hearings, Ueda emphasized continuity and argued that the central bank's current strategy is appropriate.
The markets, however, are not persuaded that Ueda will wait before making any changes to the policy. Bond markets have been harmed by the Bank's yield curve control policy, and if Ueda skips the April meeting, there may be a significant drop in bond prices.
Adding to the drama, there is talk that Kuroda might make a change to the policy at his final policy meeting on March 10 to relieve Ueda of some of the pressure.
USD/JPY Technical
There is resistance at 137.37 and 138.24
135.65 and 134.78 are providing support