JPY: Japan inflation back up at 42-year high

Excluding food and energy, the so called "core-core' inflation, the indicator favoured by the BoJ, climbed back up to 4.3%, a four-decade high it first reached in May.

(Video Transcript)

JPY

There's been a bit of a release for the JPY in the session over the last couple of days. It's up for a second day in a row. Today after Japan's inflation remained at 3.3 percent, economists had been expecting the consumer price index (CPI) in Japan to drop to 2.5 percent.

Core inflation

Now last month when inflation rose to 3.3 percent in June, it was the first time in eight years it outrun the U.S. equivalent release, underscoring how Asia's most advanced economy is no longer an outlier in global inflation.

Core inflation came in line with expectations at 3.1 percent, excluding food and energy, what the Japanese call core, core inflation, the indicator favoured by the Bank of Japan, climbed back to 4.3 percent. Now that's a more than four decade high. It reached that first back in May this year, so it confirmed that 42-year high. And we've been watching what's happening with the Japanese yen in the wake of this.

Now the rise that we've seen in the dollar has taken the Japanese yen down to levels that had previously seen intervention by the Japanese authorities. That was back over here in October and November last year, and we remember we saw the intervention which took it down. That never lasts for long.

Bank of Japan

We know from past experience that it doesn't really matter how much money you pump in, you can never get in the way of a market that's as free-flowing as the dollar yen, as the euro dollar, a sterling dollar, all these big crosses have more money going through than I think any government can really throw at it to change the direction for any length of time.

And the big question is, is whether this will stir the Bank of Japan into tightening monetary policy, the Japanese yen or the dollar, down the second in a row, down at 145.08. At the moment at least, there is the long-term expectation we're going to see a continuation of this uptick on the dollar against the JPY. This is just a small minor irritation on the downside.

USD/JPY

Whether or not we see longer-term upside remains to be seen, but at the moment it is just a small retracement from what is otherwise an uptrend for the USD/JPY.

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