Japan reported its inflation numbers, and they were disappointing. The numbers are still skewed by the sales tax hike that sent the country into recession in April 2014, but if you exclude them, it is impossible to say that the Bank of Japan is nearing its 2% inflation goal.
With USD/JPY basically stuck in a range around 119 to 120, will action from the BOJ in April send the pair to its next leg higher?
2% inflation in 2 years?
The Tokyo Core CPI rose by 2.2% month over month in March. This early report from the capital was in line with forecasts and identical to the previous month. After removing the effect of the tax hike, from 5% to 8%, the rise in prices is 1.5% to 1.7% lower.
This means 0.5% to 0.7%. This comes nearly 2 years after Kuroda entered his office as the governor of the BOJ. Where is the 2% in 2 years?
The national core CPI is further behind for February: a rise of 2% year over year, worse than 2.2% in January and 2.1% expected.
Next month, we will get the initial Tokyo data for April. This will already reflect changes in prices after the tax hike came into effect, and calculations about the effect of the tax will not play any role.
Will the Bank of Japan move to add more Quantitative Easing?
3 Arrows
There is some hesitance: When PM Shinzo Abe came into office in late 2012, he presented 3 arrows: monetary stimulus, fiscal stimulus and reform – the third arrow.
So far, monetary stimulus has been quite extreme: an initial move in April 2013 by the then new governor Kuroda, and another surprising move in October 2014.
Regarding fiscal stimulus, Abe presented some investment programs at the beginning of his first tenure, but the tax hike was certainly a fiscal drag.
And what about the third arrow? Here, Abe is moving really slowly, despite regaining a huge majority in the elections he called a few months ago.
April Move?
A lower currency could make imported energy prices, on which Japan relies heavily, quite costly. The yen has already depreciated quite a lot in recent years.
Nevertheless, it seems that the BOJ is the only game in town. If so, we could see more action and USD/JPY rising to 125 or even 130.
More: Stay Bullish USD/JPY; – BofA Merrill
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