Japanese Yen, CPI Inflation Talking Points:
- Japanese CPI rose 1.3% in August
- This was the strongest reading since February
- However core measures remain extremely subdued despite years of stimulus
The Japanese Yen showed perhaps surprisingly little reaction on Friday to news that domestic Consumer Price Index Inflation had risen to its highest point in seven months.
August headline CPI growth came in at 1.3% on the year, its strongest showing since February’s 1.5% gain. It was also well above the 1.1% rise markets expected. That said the important variant which strips out the volatile effects of both fuel and food prices rose by a far more subdued 0.4% annualized, so the underlying trend here remains achingly weak.
CPI is of course the most important piece of data in the monthly Japanese round. The Bank of Japan remains publicly committed to keeping monetary policy extraordinarily loose until inflation sustainably hits 2%. However, with that still a distant dream perhaps at best, suspicions are growing that something will eventually have to give.
Japanese Prime Minister Shinzo Abe said just last week that monetary policy cannot remain accommodative forever.
Still, the Japanese Yen seems much more focused on global trade developments for the moment. There it vies with the US Dollar to be investors’ haven currency of choice whenever the rhetoric between Beijing and Washington DC gets heated. With no end in sight to tit-for-tat tariff skirmishes between the two global titans this is likely to be the case for some time.
USD/JPY certainly didn’t move much on Friday’s inflation news.
Meanwhile the daily chart shows a US Dollar still in control. USD/JPY has topped its previous near-term highs and remains well above a key uptrend line which has been in place since late March. Whether current vigor will give Dollar bulls the confidence they’ll need to get back to the peaks of late July is still unclear.
However while that uptrend line endures they remain in charge, and that line is a long way below the current market.
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--- Written by David Cottle, DailyFX Research
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