The Japanese Yen saw a strong surge in December as BOJ winked at a rate hike, but they have backtracked and the JPY remains the weakest of major currencies. USD/JPY surged above 150 and is holding above that major level, and the pressure remains to the upside, with CPI inflation falling below the 2% target in Japan.

The forecast for the national core Consumer Price Index (CPI) in January was expected to show a sizeable decrease to 1.9% year-on-year, from 2.3% in December. This anticipated cooling in inflation is partly attributed to base effects. To gauge the potential direction of national CPI in Japan, analysts often use the Tokyo CPI as a proxy.

In January, the Tokyo CPI showed a 8 point slowdown, dropping to 1.6% year-on-year compared to expectations of 2.0% and the previous reading of 2.4%. This decline brought Tokyo’s inflation rate below 2.0% for the first time since March 2022. The primary drivers behind the 0.8 percentage point drop in the last reading for Tokyo’s headline inflation rate were a slowdown in food and services inflation, which accounted for more than 70% of the decrease. This is very welcomed by the Japanese public, since these are the areas that weigh more on the ordinary citizen.

Additionally, a decline in energy costs continued to exert downward pressure on inflation. Core Tokyo CPI, which excludes volatile food and energy prices, also printed below expectations at 1.6% year-on-year, compared to expectations of 1.9% and the previous reading of 2.1%. Last night’s core CPI inflation for the whole country followed this pattern, posting another sizeable decline in January, however, the main number missed expectations, coming at 2.0%. USD/JPY has turned bearish today. falling to 150 lows, which is holding for now.

Japan National Core CPI Inflation Report

• Core CPI YoY (excluding fresh food) came in at +2.0%, surpassing expectations of +1.8%. This measure excludes the volatile component of fresh food prices, providing a clearer picture of underlying inflationary trends. Slowest increase since March 2022.
• Core CPI YoY (excluding fresh food and energy) was reported at +3.5%, slightly lower than expectations of +3.7%. This measure excludes both fresh food and energy prices, offering a more stable gauge of inflationary pressures. Slowest rate of increase since February 2023
• The National Consumer Price Index (CPI) recorded a reading of +2.0% compared to the previous figure of +2.6%. This index provides a broad measure of price changes across various goods and services consumed by households.

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