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It’s always been like this Race against time to the Bank of Japan in the first half of this year. Today’s inflation data confirms these sentiments, with prices converging further towards the pivotal 2% mark. Where are you inflation?
Japan CPI (excluding fresh food and energy) year-on-year (%)
The headache facing the Bank of Japan continues like this. They managed to squeeze in a rate hike in March but are struggling to follow through.
Previous thinking was that they might move in June or perhaps July. But now, the narrative has shifted to the possibility of a Bank of Japan move next September. It’s a case of kicking the can down the road.
Policymakers are still making the case that prices will start rising again in the second half of 2024. Their belief stems from the supposed “virtuous cycle” that has formed alongside rising wages in the past two years. But it’s best to remember that this place has been struggling for attention for over two decades in Japan.
Not to mention, they are swimming against the current here. All other major central banks see inflation pressures falling further by 2025. So there you have it.
The longer the data continues in this direction, the harder it becomes to justify condemning the Bank of Japan. This is ultimately what is putting pressure on the yen, and will continue to do so in the bigger picture.
USD/JPY is now rising towards 159.00 today, with eyes alert for Tokyo to intervene again.
