Higher Japan CPI Inflation Can’t Stop USDJPY Uptrend

The CPI inflation report showed a jump to 2.9% in November, but the BOJ gave no signals of changes yesterday, which has left USDJPY bullish.

After experiencing a significant summer downturn that pushed its value below 140, the USD/JPY appears to have left its bearish phase behind, with buyers firmly regaining control and driving the price steadily toward 160. In late November, the pair suffered another sharp drop, losing 7 cents and slipping below the critical 150 level. This pullback followed a robust two-month rally where USD/JPY climbed approximately 17 cents.

The decline, however, found strong support near key moving averages, enabling buyers to step back in during December. So far this month, the pair has regained around 9 cents, signaling renewed bullish momentum. After an initial surge following the FOMC’s hawkish 25 basis point rate cut, markets briefly paused as traders awaited signals from the Bank of Japan about a potential rate hike. When such indications failed to materialize, the bullish momentum resumed, propelling USD/JPY to approach 158, where it ended yesterday’s session.

USD/JPY Chart Daily – Heading for 160

The Bank of Japan said that it’s decision on a potential rate hike in January will depend on a comprehensive evaluation of the available data, though it’s uncertain if the incoming data will provide sufficient support for such a move. While Japan’s economy is showing moderate recovery despite some weakness, it faces significant uncertainties.

High prices persist, and the impact of foreign exchange dynamics has grown as businesses become more inclined to raise wages and prices. Policymakers emphasize the need for further insights into wage trends and projections, signaling that adjustments to policy easing will be guided by evolving economic and price outlooks.

Japan Inflation Data for November 2024

Headline Inflation

• CPI (Headline):
  • Increased to +2.9%, matching expectations.
  • Higher than October’s reading of +2.3%, indicating accelerating inflation.

Core Inflation Measures

• CPI Excluding Fresh Food (“Core Inflation”):
  • Rose to +2.7%, slightly exceeding expectations of +2.6%.
  • Notable increase from October’s +2.3%.
• CPI Excluding Fresh Food & Energy (“Core-Core Inflation”):
  • Climbed to +2.4%, in line with expectations.
  • Up from +2.3% in October, reflecting underlying inflation pressures.

Context and Implications

• November’s figures show a steady rise in price levels across various categories.
• The rise in Core-Core CPI suggests persistent underlying inflation not driven solely by energy or fresh food prices.
• The upward trajectory aligns with recent pressures from wage hikes and higher costs passed on by businesses.
• Comparisons with global trends: The Core-Core CPI metric, akin to the US core inflation measure, highlights the spread of inflation across essential goods and services in Japan.

Japan’s inflation data for November highlights a consistent increase in both headline and core inflation metrics. The headline CPI surged to +2.9%, while core inflation measures rose further, surpassing or matching expectations. These trends signal that inflationary pressures remain entrenched, supported by broader price adjustments. For the Bank of Japan, these results add to the debate about whether to maintain its dovish stance or prepare for adjustments to align with evolving economic realities. Japanese officials made some comments on forex which did send the JPY 50 pips higher, but nothing to change the situation for this pair.

Comments from Japan’s Finance Minister Kato

USD/JPY Live Chart

USD/JPY

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst.
Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank’s local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.