Japanese yen yawns as CPI rises

Japan’s CPI hits 2-year high

In Japan, the spotlight this week was on inflation indicators. After decades of deflation, Japan is experiencing inflationary pressures, although nothing on the scale that we’re seeing in the US or the UK. Inflation remains below the BoJ’s target of around 2%, but if the upswing continues, it could lead to a more hawkish stance from the BoJ.

Tokyo CPI for February jumped 1.0% y/y, up from 0.6% in January. This was the fastest annual pace since December 2019. The primary drivers of Japan’s inflation are increases in price of food and fuel. The crisis in Ukraine has already pushed oil above the 100-dollar level and a further jump in oil prices will dampen consumption and could derail the fragile economic recovery. Earlier in the week, BoJ Core CPI, the central bank’s preferred inflation gauge, rose 0.8%, lower than the 0.9% gain beforehand.

The Russian attack on Ukraine led to a torrent of condemnations from western leaders, but US President Biden’s announcement of sanctions actually boosted the financial markets, which had feared event tougher measures against Moscow. Biden is clearly unwilling to take any steps that would raise gasoline prices for US consumers, so he has avoided any sanctions against Russian energy entities. Also, the US could not get Europe to agree to exclude Russia from SWIFT, the global interbank payment system, which would have significantly hurt the Russian financial system. As things stand, the bark of sanctions is worse than the bite, leaving Russian President Putin a free hand to make changes in Ukraine as he sees fit.

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USD/JPY Technical

• The 100-DMA at 114.37 is providing support. Close by, there is support at 114.16
• There is resistance at 115.68. This line was tested on Thursday and remains under pressure. Above, there is resistance at 116.30

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