It was bound to be a race against time for the Bank of Japan in the first half of the year, and today’s inflation data reaffirms that view, with prices creeping ever closer to the crucial 2% mark. Where is the inflation?
Japan Consumer Price Index (excluding fresh food and energy) Year-on-year change (%)
The headaches for the Bank of Japan continue as it struggles to follow through on a rate hike it managed to pull off in March.
The initial view was that the BOJ might act in June or July, but now the growing view is that the BOJ could act as soon as September next year, which is just postponing the problem.
Policymakers continue to maintain that prices will eventually start rising again in the second half of 2024. Their belief stems from the “virtuous cycle” that has formed with wage increases over the past two years. But it’s best to remember that in Japan, the sector has struggled to gain traction for more than two decades.
And not to mention they are going against the flow here. All the other major central banks are claiming that inflation pressures will decline further as we move towards 2025. So there you have it.
The more the data continues to trend this way, the harder it becomes for the Bank of Japan to justify its confidence, which has ultimately weighed on the yen and will continue to do so in the bigger picture.
USD/JPY has risen to nearly 159.00 today, bringing attention back to Tokyo intervention.
