JPY: Tokyo drift
The sharp falls in Tokyo inflation for January remind investors of the ending of the
BoJ’s YCC and/or NIRP in 2024 are not set in stone. Tokyo inflation is a very good
leading indicator for the nationwide inflation data. Tokyo inflation excluding fresh
food as well as headline inflation plunged below the BoJ’s 2% target to 1.6% YoY;
well below the consensus forecasts. January is the first time Tokyo inflation
excluding fresh food is below the 2% target in a bit over 18 months. Tokyo inflation
excluding fresh food and energy dropped to 3.1% YoY; also well below the
consensus forecast. The Tokyo inflation data will challenge the increased
confidence expressed by BoJ Governor Kazuo Ueda in his post-meeting press
conference that the central bank will meet its inflation goal. This confidence helped
the JPY stage a modest rally this week as JGB yields moved higher in anticipation
of the formal ending of YCC as well as NIRP in the coming months. The Minutes
to the BoJ’s December meeting continue to feed this speculation as Board
members shared the view that deepening discussion on the timing and pace to
raise rates was required.
Another factor that can give ground to the Yen is the BOJ intervention in the Forex market which had already happened a couple of times in 2023. They are closely tracking the USDJPY rate and tend to intervene around the 150.00 level which is about to be tested soon. For now, BOJ prefers FX interventions as they are effective so far and not damaging the already deflating economy as real interest rate increases would do. The Japanese Governor Ueda is also using his words wisely as we can see, only speaking about potential interest rate hikes affects the currency as if they increased them already although getting out of the ultra-loose policy is highly unlikely in 2024.
Check out my other ideas below:
BoJ’s YCC and/or NIRP in 2024 are not set in stone. Tokyo inflation is a very good
leading indicator for the nationwide inflation data. Tokyo inflation excluding fresh
food as well as headline inflation plunged below the BoJ’s 2% target to 1.6% YoY;
well below the consensus forecasts. January is the first time Tokyo inflation
excluding fresh food is below the 2% target in a bit over 18 months. Tokyo inflation
excluding fresh food and energy dropped to 3.1% YoY; also well below the
consensus forecast. The Tokyo inflation data will challenge the increased
confidence expressed by BoJ Governor Kazuo Ueda in his post-meeting press
conference that the central bank will meet its inflation goal. This confidence helped
the JPY stage a modest rally this week as JGB yields moved higher in anticipation
of the formal ending of YCC as well as NIRP in the coming months. The Minutes
to the BoJ’s December meeting continue to feed this speculation as Board
members shared the view that deepening discussion on the timing and pace to
raise rates was required.
Another factor that can give ground to the Yen is the BOJ intervention in the Forex market which had already happened a couple of times in 2023. They are closely tracking the USDJPY rate and tend to intervene around the 150.00 level which is about to be tested soon. For now, BOJ prefers FX interventions as they are effective so far and not damaging the already deflating economy as real interest rate increases would do. The Japanese Governor Ueda is also using his words wisely as we can see, only speaking about potential interest rate hikes affects the currency as if they increased them already although getting out of the ultra-loose policy is highly unlikely in 2024.
Check out my other ideas below:
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