Japanese Yen gains ground, Tokyo Core CPI eases

The Japanese yen is showing some life following a nasty slide earlier in the week, which saw it decline around 1.5% and come close to the symbolic 150 line. In the European session, USD/JPY is trading at 148.72, down 0.40%.

Tokyo Core CPI falls to 2.5%

Japan is experiencing higher inflation than it has known for decades, although it remains much lower than in other major economies. Tokyo Core CPI, which excludes fresh food, rose 2.5% y/y in September, down from 2.8% in August and a notch below market expectations of 2.6%. The “core core” rate, which excludes fresh food and energy, dropped from 2.6% to 2.4% y/y.

There are two observations one can make about Japanese inflation. One is that inflation has been slowing in recent months. The second is that inflation has been running above 2% for around a year and a half – in the case of Tokyo Core CPI, it has surpassed 2% for 16 straight months. That raises the question of whether Japan’s inflation is sustainable or transient. One could make a strong case for the latter, as inflationary pressures have persisted for a very long period.

The Bank of Japan has dismissed this argument, insisting that wage growth will have to climb before the BoJ acknowledges that inflation is sustainably around the 2% target. Until then, the BoJ will not shift its policy, or so it says. The markets have been burned by the BoJ more than once, and there has been constant speculation that the BoJ will phase out its massive stimulus sooner rather than later, despite the messages coming out of the central bank.

Another concern for market participants is the value of the yen, which has depreciated sharply in recent months. The yen has lost around 7% since early July, when it was trading around 139 to the dollar. This has raised concerns about currency intervention in order to prop up the yen, which occurred about a year ago. The yen’s slide has resulted in verbal intervention from Tokyo, and if the yen breaches the 150 level, traders should be on alert for a possible intervention.

USD/JPY technical

• USD/JPY is testing support at 149.19. Below, there is support at 148.79.

• There is resistance at 148.10 and 147.65.