Japan's core inflation held at a record 2-year high on rising fuel prices. Meanwhile, USD/JPY fell sharply due to profit taking.
On Friday (21/January), Japan's Cabinet office released data on Core Consumer Inflation (CPI) which increased 0.5 percent year-over-year in December. Although it did not meet expectations of 0.6 percent growth, it still held on to a 2-year record high.
Meanwhile, the Core CPI data, which excludes food and energy prices, fell 0.7 percent year-on-year. This figure continues the downward trend that has occurred in the last few months. Fortunately, Japan's overall inflation data still increased from 0.6 percent to 0.8 percent.
The increase in Japanese inflation data this morning is not expected to encourage the Japanese central bank (BoJ) to immediately stop the stimulus program. This is because core inflation is still far below the 2 percent target. In addition, most of the upward trend in inflation was caused by external factors, namely rising fuel prices and global supply chain bottlenecks. In other words, Japan's domestic demand is actually still weak.
The BoJ's current focus is more on monitoring whether rising worker wages can increase household purchasing power. However, the prospect of an increase in the wage rate of workers is still shrouded in uncertainty because the company is also facing the problem of rising production costs.
USD/JPY sinks
The release of Japanese core inflation this morning more or less supported the strengthening of the Yen against the US Dollar. This condition was reflected in the USD/JPY pair which moved lower at the range of 113.88. According to analysts, the phenomenon of the weakening of the US Dollar versus the Yen in recent days is an anomaly, considering that the rising US bond yields should support the Greenback.
Another theory states that the weakening of USD/JPY reflects the reaction of investors who are profit-taking after prices hit their highest levels thanks to recent speculations for a Fed rate hike.
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