Talking Points
- Another month, another weak print for Japanese consumer prices.
- The “core” index slipped back for an eighth consecutive month.
- The US Dollar posted gains, but was already extremely bullish.
The US Dollar’s advance against the Japanese Yen, and Asian currencies more generally, continued on Friday following yet another weak official reading of Japanese Consumer Price Index. The ‘core’ CPI, which strips out the volatile effects of food costs, fell for an eighth straight month in October. It slipped by -0.4% from the same month a year ago. The so-called ‘core-core’ index, which also strips out fuel prices, rose by a mere +0.2% on a year-over-year basis.
While the figures were broadly in-line with market expectations, the October CPI underscores the scale of the monetary authorities struggle with deflationary pressures, despite years of policies aimed at fighting them. The October report adds fresh kindling to the USD/JPY rally, keeping Japanese policy officials under pressure to do yet more to stimulate the economy. Nevertheless, the Bank of Japan has recently signaled that that ball may well be in the government’s court now, and that fiscal expansion may be the preferred option given how loose monetary policy already is.
Chart 1: USD/JPY 5-minute Chart (November 24 to 25 Intraday)
USD/JPY continued to build on its multi-week rise in the wake of the data. The pair traded at 113.61 in the immediate aftermath, from 113.23 beforehand. While the pair rose as high as 113.90 earlier in the Asian session, it was trading at 113.71 at the time this report was written. Higher US yields and rising expectations of higher US interest rates has seen the pair rise for 11 of the past 15 trading sessions.
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--- Written by David Cottle, Analyst
To contact David, email him at david.cottle@ig.com
