Yen Slips as Japan’s Inflation Dips

03/31/2023

1 minute read

2023.03.31 09:15

MarketPulse

The US dollar has resumed its upswing and has punched above the 133 level. In the European session, is trading at 133.23, up 0.42%. rose 3.2%, down from 3.4% prior. The US wraps up the week with the Core PCE Price Index and Personal Spending and Income.

Tokyo Core CPI falls again

Tokyo Core CPI, a key inflation indicator, decelerated in March to 3.2%, down from 3.4% prior but above the forecast of 3.1%. Inflation remains well above the Bank of Japan’s 2% target and the data from this latest inflation release showed that inflation is broad-based. Still, the BoJ is optimistic that inflation will fall to its target by the summer.

We’re unlikely to see any major policy shifts anytime soon, especially with the changing of the guard at the central bank. Kazuo Ueda takes over as Governor in April and there has been speculation for months that he may tweak or even abolish yield curve control. The BoJ widened the trading band on government bonds in December, which sent the yen sharply higher.

Japan’s economy has been improving, as the country continues to recover from the dark days of Covid. Retail sales hit 1.4% m/m in February, vs. 0.8% in January and a consensus of 0.3%, and industrial production jumped 4.5% m/m in February, rebounding from -5.3% in January and beating the 2.7% estimate.

The Federal Reserve raised rates by 25 basis points last week, bringing the cash rate to 5.0%. The Fed doesn’t meet again until May 3rd, with the odds of another 25 bp increase at 55% and a pause at 45%, according to the CME Group (NASDAQ:). The direction of inflation will play a key role in the rate decision, and we’ll get a look at the Core PCE Price Index, the Fed’s preferred inflation measure, later today. The forecast is for the indicator to drop to 0.4% in February, down from 0.6% prior. US Personal Spending and Income will be released today and are both expected to ease in February.

USD/JPY Daily Chart