Japan August inflation report came in roughly in line with expectations and left investors with no choice but to look abroad for a driver. Headline inflation beat forecast as it rose to 1.3%y/y compared to 1.1% expected and 0.9% in the previous month. However, most of the upside surprise come from the rise in fresh food prices, as the core measure, which excludes fresh food, matched estimates of 0.9%y/y, up from 0.8% in July. Even though it is only halfway to the BoJ’s target, the core measure has been maintaining a positive momentum since April and this trend is set to continue in the coming months.
USD/JPY rose 0.20% to 112.85 this morning amid renewed risk appetite. Equities rose across the board with the Chinese market surging the most, thanks to circulating rumours that China is about to cut import taxes from the majority of its trading partners. The timing of the announce suggests that the move is not only a way to stimulate domestic consumption but also to show the world that the country is of goodwill and continues to open up.
We expect the yen will recovers against the greenback as the BoJ started to reduce its bond purchase program for super-long maturity, while the Fed will most likely slowdown the pace of rate hike.
By Arnaud Masset