Tokyo inflation rises, keeping BoJ on track for rate hike

The Japanese yen has posted considerable gains on Friday. In the European session, USD/JPY is trading at 150.53, down 0.33% on the day.

Tokyo core inflation accelerates to 2.4%, higher than expected

Inflation in Japan's capital accelerated in February. Tokyo Core CPI, one of the most important inflation indicators, rose to 2.4% y/y, up from 2.2% in January and above the market forecast of 2.2%.

Tokyo CPI climbed to 2.9%, up from 2.8% in January but below the market estimate of 3.1%. The gain was largely driven by rising rice prices, which have soared by 90% over the past year.

This is the fifth straight month that both headline and core inflation has stayed above the Bank of Japan's 2% target, supporting the case for the central bank to continue raising interest rates. The BoJ has been cautious and held rates earlier this month, citing the uncertainty in the global economy.

Earlier this week, Governor Kazuo Ueda said that the recent spike in inflation was driven by temporary factors such as higher import costs and food prices, which was not a reason to tighten policy. However, Ueda warned that if the acceleration in food and other prices proved to be broad-based, the BoJ would have to respond with a rate hike.

Ueda has been sending strong signals about another rate hike but hasn't specified a timeline. The BoJ meets next on May 1 and the money markets have priced in a 27% chance of a quarter-point hike.

BoJ summary of opinions indicates concern over inflation

Overshadowed by the Tokyo inflation report was the release of the BoJ Summary of Opinions from the March meeting.
Hawkish members noted that inflationary pressures were rising and rising food prices could have a significant impact on underlying inflation, while the more dovish members focused on risks to Japan's economy due to US tariff policy. The takeaway from the discussion is that the BoJ has probably not circled a date to raise rates and remains in a wait-and-see-mode.

USD/JPY technical

• USD/JPY is testing support at 150.75, followed by support at 15.035.

• 151.45 and 151.85 are the next resistance lines.