Is Japanese inflation falling?

The Japanese yen has edged lower on Tuesday. In the European session, USD/JPY is trading at 144.76, up 0.17% on the day at the time of writing.

BoJ Core CPI slips to 1.8%

Is Japanese inflation falling? On Tuesday, two inflation indicators pointed to a deceleration in inflation in July. BoJ Core CPI, which is closely monitored by the Bank of Japan, dropped to 1.8%, down from 2.1% in June and its lowest level in three months. The Services Producer Price Index dropped to 2.8%, down from a revised 3.1% in June.

Japan’s inflation has been moving higher, which has supported the case for another rate hike from the Bank of Japan. The central bank has projected that inflation will hover around its 2% target until 2027. Today’s inflation releases could be temporary blips but if the next inflation reports also indicate that inflation is heading lower, it could complicate the BoJ’s plans to gradually normalize its ultra-loose policy.

The International Monetary Fund said on Friday that it supports the BoJ’s move to normalization and that the speed of further rate hikes will be ‘very data-dependent”, with a focus on inflation, wage growth and inflation expectations. We’ll get a look at Tokyo Core CPI on Friday, which is expected to remain unchanged at 2.2%.

The Jackson Hole Symposium was “mission accomplished” for the markets as Federal Chair Jerome Powell signaled that the Fed was ready to cut rates. Powell didn’t specify the September meeting as the kickoff for rate cuts, but the markets are confident that the Fed will cut by a quarter-point at the Sept. 18 meeting.

The US releases a key employment report on Sept. 6 and Goldman Sachs has said that if the jobs report is soft again then the Fed could respond with a 50-basis point cut, while a strong jobs release would support a 25-bps move.

USD/JPY technical

USD/JY is testing resistance at 144.98. Above, there is resistance at 145.42.

There is support at 144.21 and 143.77.