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Talking Points

  • Producer price deflation continues in Japan
  • However, the trend since summer suggests its grip is weakening
  • Trump-obsessed markets may not notice for a while

The US Dollar’s “Trump bounce” continued on Friday, seeing it rise against a Yen probably not helped by more deflationary data out of Japan.

October’s Producer Price Index (PPI) fell 0.1% on the month, for a 2.7% annualized fall. Although deflation still clearly rules here, the annualized figure managed to continue the trend towards weaker deflation seen since the spring. Price falls of more than 4% were recorded in April, May and June.

Japanese PPI has fallen every month since the April of 2015. Both consumer and producer prices have been weak in Japan as lackluster growth and feeble wage inflation sap demand. Government and the monetary authorities have made strenuous efforts to change the game and, although PPI appears to be headed in the direction they would like, it remains extremely weak.

Given the seismic events in the US this week, it’s extremely difficult to sift currency moves that are data-dependent from the general background noise, which is tending very strongly toward a stronger greenback.

That trend has certainly continued in Asia on Friday with USD/JPY at 106.87 from 106.45 before the numbers.

USD/JPY Still Trump-Watching as Japan PPI Slips Again

Chart created using TradingView

--- Written by David Cottle, DailyFX Research