Japanese yen shrugs as Tokyo Core CPI slows

• Tokyo Core CPI eases to 2.1%

The Japanese yen has posted slight gains for a second straight day. In the European session, USD/JPY is trading at 144.10, down 0.09%.

Tokyo Core CPI dips to 2.1%

Tokyo Core CPI rose 2.1% y/y in December, down from 2.3% in November and matching the estimate of 2.1%. This marked the lowest reading since June 2022. At the same time, the indicator has exceeded the Bank of Japan’s target of 2% for 19 straight months.

There has been speculation that persistent inflation the BoJ will tighten policy and BoJ meetings have become closely-watched events, with investors on the alert for a shift in the BoJ’s ultra-loose policy. The BoJ meets next on Jan. 22-23. BoJ Governor Ueda has hinted at a change in policy but has stressed that wages must first rise if the BoJ is to achieve its goal of sustainable inflation at 2%.

The BoJ’s ultra-loose policy took a massive toll on the yen in 2023. The yen plunged 15% between January and October but managed to recover about half of those losses by the end of the year, as the US dollar retreated on expectations that the Federal Reserve would lower rates in 2024.

Japan’s economy remains weak, which is another reason that the BoJ is hesitant to tighten policy. Household spending, released earlier today, declined 1% in November, compared to -0.1% in October and lower than the estimate of 0.2%. On a yearly basis, household spending fell 2.9% in November, down from -2.5% in October and shy of the estimate of -2.3%. Since November 2022, household spending has posted only one gain as consumers continue to hold tight to the purse strings due to the difficult economic conditions.

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USD/JPY Technical

• USD/JPY tested resistance at 144.27 earlier. Above, there is resistance at 144.89
• There is support at 143.63 and 143.01

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