USD/JPY Dips as Tokyo Core CPI Slows

03/03/2023

1 minute read

2023.03.03 10:16

The Japanese yen gained ground on Friday. In the European session, is trading at 136.17, down 0.44%.

Tokyo Core CPI eases

There was some positive news on the inflation front, as for February slowed for the first time since January 2022. The indicator was expected to rise from 4.3% to 4.5% but instead reversed directions and fell to 3.3%. The sharp drop was not a complete surprise, as it was driven by government subsidies, including a 20% reduction in household electricity bills, which took effect in February. Without the subsidies, it’s likely that the Tokyo inflation figure would have come in at around 4.5%.

It’s unclear how long the government will continue these subsidies, which means that the inflation picture remains uncertain. The Bank of Japan has insisted that rising inflation is transient and is a result of external factors such as high commodity prices rather than domestic inflationary pressures. The central bank has insisted on maintaining its massive stimulus program even though inflation has been on the upswing and is more than double the BoJ’s target of 2%.

All eyes are on the Bank of Japan as the changing of the guard looms ever closer. BoJ Governor-elect Kazuo Ueda will take over the helm from Haruhiko Kuroda in early April. Ueda has been careful not to make any waves at his confirmation hearings, saying that the central bank’s current policy is appropriate.

Still, the markets aren’t convinced that Ueda will maintain Kuroda’s ultra-loose policy, especially with rising inflation. The BoJ’s yield curve control (YCC) policy has damaged the bond markets and there is speculation that Kuroda could make a grand exit at his final meeting on March 10 and tweak YCC in order to relieve pressure on Ueda.