Japan Inflation Rate Hits 3.3% to Keep Pressure on the BoJ

Highlights

• Inflation figures from Japan were in focus this morning after Japan’s Government revised forecasts for the fiscal year.
• The national core inflation rate accelerated from 3.2% to 3.3% in June.
• The latest inflation numbers supported bets on a BoJ policy tweak.

It was a relatively busy morning on the Asian economic calendar. Inflation figures from Japan were in focus this morning. The markets are looking for reasons for the Bank of Japan to tweak its monetary policy stance from ultra-loose.

In June, Japan’s core inflation rate accelerated from 3.2% to 3.3% versus a forecasted 3.3%. However, the national annual inflation rate increased from 3.2% to 3.3% versus a forecasted 3.5%.

While the headline figure was softer than expected, the numbers were good enough to fuel bets on a Bank of Japan policy tweak. The BoJ could tweak the yield curve control (YCC) policy. However, we don’t expect the BoJ to begin considering a move away from negative interest rates.

On Thursday, Japan’s government forecast inflation to sit at 2.6% this fiscal year, well above the BoJ’s 2% target, while revising its growth forecast from 1.5% to 1.3%. In January, the government forecast inflation to hit 1.7% for the fiscal year.

The latest inflation numbers supported the government forecasts, giving the BoJ plenty to discuss at the next BoJ meeting on July 27.

USD/JPY Reaction to the Japan Inflation Report

Ahead of the inflation numbers, the USD/JPY rose to a high of 140.095 before falling to a pre-stat low of 139.923.

However, in response to the inflation numbers, the USD/JPY fell from 139.974 to a post-stat low of 139.769.

This morning, the USD/JPY was down 0.17% at 139.828.

Up Next

It is a quiet day ahead on the global economic calendar. There are no euro area or US economic indicators to move the dial later in the day. The lack of stats will leave corporate earnings, US soft-landing bets, and central bank policy bets to influence market risk sentiment.