(24 AUGUST 2018)DAILY MARKET BRIEF 2:Weak bounce in Yen despite higher inflation

Japanese inflation numbers continue to disappoint, rendering the Bank of Japan’s 2% inflation target by 2021 less likely. July’s nominal consumer prices increased by 0.90% (prior: 0.70%) amid increasing fresh food and fuel prices, but core figures suggest a flattening of the measure, both given at +0.80% (ex. food) and +0.30% (ex. food and energy): almost unchanged since the beginning of the year (+/- 0.2 range bound). The likelihood of the BoJ adjusting its inflation forecast downward is becoming certain. 

The recent decision to allow a wider fluctuation of its 10-year government bond yield will cause further yen appreciation, which is expected to reduce inflation. Government’s decision to reduce mobile wireless fees by 40%, a business contributing 0.90% of core CPI expansion, could subdue consumption. Following the announcement on Tuesday, KDDI, NTT Docomo, Rakuten and Softbank lost -5.22%, -4%, -3.59% and -1.63% respectively. Currently trading at 111.39, USD/JPY is expected to bounce back, heading along 111.50 in the short-term.

By Vincent Mivelaz