Morning Brief – Yen lower due to CPI number

The Japanese yen currency moved lower today due to the fact that Japan’s inflation reading for November came in higher than most people had been predicting.

The annual inflation rate in Japan edged up to 3.8% in November 2022 from 3.7% a month earlier, pointing to the highest reading since January 1991, amid high prices of imported raw commodities and persistent yen weakness.

On a monthly basis, consumer prices went up 0.3% in November, slowing from a 0.6% gain in October which was the steepest increase since April 2014.

Core consumer prices increased by 3.7% year-on-year, the most since December 1981, matching market forecasts but above the Bank of Japan’s 2% target for an eighth straight month.

Upward pressure came from all components: food (6.9% vs 6.2% in October); housing (1.2% vs 1.1%); fuel, light, and water charges (14.1% vs 14.6%), mainly electricity (20.1% vs 20.9%) and gas (21.0% vs 20.0%); transport & communication (1.6% vs 2.0%); medical (0.3% vs 0.2%), furniture & household utensils (7.3% vs 6.9%); clothes (2.7% vs 2.5%), education (0.7% vs 0.7%), and miscellaneous (0.9% vs 0.8%).

The release of the Bank of Japan meeting minutes also gave no hint that the central bank would be making any major changes in policy during the January meeting.

Members agreed must maintain current easy policy to hit price target stably, sustainably. One member said effect of BOJ’s easing may be heightening as moderate increase in inflation expectations push down real interest rates.

Additionally, one member said rise in nominal wages crucial for inflation to stably hit 2%, while a few members said ill-timed policy tweak could disrupt positive inflation-wage spiral.

One voting member said while there is no immediate need to tweak policy, BOJ must keep eye out on side-effects of easing, examine how rising prices would affect households’ behaviour and wages

A few members said BOJ must be mindful of how future interest rate rise may affect mortgage loans. The minutes also said recent sharp yen falls heightening uncertainty for firms, have many demerits for Japan’s economy.