Japanese Yen steady, Tokyo CPI falls

The Japanese yen has edged lower on Tuesday. In the European session, USD/JPY is trading at 147.08, down 0.10%.

Tokyo Core CPI softer than expected

Tokyo Core CPI, a leading indicator for nationwide inflation, climbed 2.3% y/y in November. This was down from 2.7% in October and below the consensus estimate of 2.4%. This marked the 18th consecutive month that Tokyo Core CPI has hovered above the 2% target, indicating persistent inflationary pressures. Tokyo’s headline inflation also slowed in November to 2.6%, down from 3.3%.

With inflation persistently above the 2% target, speculation is high that the Bank of Japan will have to tighten its ultra-loose monetary policy. The BoJ has pushed back against these expectations, insisting that the rise in inflation is due to cost-push factors and that higher wages are needed to ensure inflation is sustainable. This message was echoed on the weekend by Bank of Japan board member Asahi Noguchi, who said that sustained wage increases were needed to reach the 2% inflation target.

The Japanese recovery has been slow and that will provide a strong argument for the central bank to continue its massive stimulus, which is aimed at boosting economic growth. The BoJ holds its next meeting on December 18-19. The meetings have been garnering a great deal of attention, as investors await a shift in policy. I don’t expect any significant moves at the December meeting but the BoJ is not known for its transparency and likes to surprise the markets, which means that a change in policy, although unlikely, cannot be completely discounted.

The US releases the ISM Services PMI later today. The October print fell to 51.8, down from 53.6 and the lowest in five months. The PMI isn’t expected to show much change in November, with a consensus estimate of 52.0.

USD/JPY technical

148.77 and 147.72 are the next resistance lines.

146.48 and 145.96 are providing support.