The Japanese yen fell against the US dollar during the Asian session as the Tokyo CPI number rose and Japanese Prime Minister Kishida spoke about monetary policy.
The USDJPY pair moved towards the 130.00 handle after the core consumer price index for the Ku-area of Tokyo in Japan jumped 4.3% in January 2023, accelerating at the fastest pace since 1981 and exceeding forecasts for a 4.2% rise amid broadening inflationary pressure.
Tokyo’s core inflation rate, a leading indicator for nationwide price trends, also followed a revised 3.9% gain in December and surpassed the Bank of Japan’s 2% target for the eighth straight month, signaling that upward price trends in the country have not reached their peak yet.
This reading adds pressure on the central bank to exit its ultra-easy monetary policy through yield target adjustments. The countrywide CPI number was also above the central bank’s target.
Still, BOJ Governor Haruhiko Kuroda continued to deny speculations of a hawkish tilt, highlighting the bank must keep supporting the economy until the current cost-push inflation turns into a demand-driven one accompanied by wage growth.
Japanese Prime Minister Kishida said early today that he “Acknowledges the Bank of Japan’s December policy decision was an operational tweak to enhance, sustain monetary easing effects smoothly.”
PM Kishida also said, “domestic demand-driven inflation remains weak” and “Inflationary pressure based on domestic demand is not strong yet, as current consumer price increases are brought by global raw material inflation and a weak yen”.
Recent indications from corporates hint, to me that while there may be wage rises they’ll not be enough to keep up with inflation and thus will fall short of what is required for more stable demand-pull inflation.
The market consensus is for the BOJ to move towards some sort of exit after Bank of Japan Governor Kuroda departs in April and is replaced may be overstating what the Bank will do.