Japanese Yen Calm as Inflation Rises

11/18/2022

1 minute read

2022.11.18 15:59

MarketPulse

The is unchanged on Friday and is trading at 14.017 in the European session.

Japan’s Core CPI beats forecast

Inflation continues to creep up in Japan. accelerated to 3.6% in October, up from 3.0% in September and edging above the consensus of 3.5%. These levels pale compared to what we’re seeing in the US, the UK, and elsewhere, but Japan hasn’t seen these inflation levels in 40 years.

The country has a deflationary mindset, which leads firms to absorb higher costs for fear of losing customers. However, that trend is changing as inflation continues to increase, and consumers feel the pain of higher prices.

Despite rising inflation and a weak yen, the Bank of Japan is resolute in maintaining its ultra-loose policy to support the weak economy. The BoJ has been an outlier as it has capped interest rates while the global trend has been to raise rates, arguing that cost-push inflation is only temporary.

BoJ Governor Kuroda has said that inflation should peak after hitting 3%. Kuroda might want to consult with Jerome Powell or Christine Lagarde about making assumptions about inflation peaks, as they found out, to their chagrin, that inflation was much stickier than they had anticipated.

Fed continues tightening talk

Ever since the last report sent the equity markets soaring and the sliding, the Fed has circled the wagons and telegraphed a hawkish message to the markets. The latest salvo came from Fed member Bullard, who urged the Fed to raise rates to 5%-5.25% at a minimum.

Bullard also presented a hawkish scenario in which the funds rate would climb to 7%, a message investors clearly didn’t want to hear. and were better than expected, indicating that the US economy remains resilient to handle further rate hikes. The Fed’s coordinated message and the solid data have quelled the stock market rally and boosted the US dollar.

USD/JPY daily chart.