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Inflation figures from Japan showed a general picture of an advance: prices, which already began rising, have accelerated and sometimes came above expectations.

The figures are for January on the national level and for February in the capital Tokyo. These rises are not totally unexpected, given the fact that the sales tax is going up in April, and this could have caused some Japanese to bring forward their shopping. Are these price rises enough for the BOJ, or will it ind itself intervening with another policy move in April? This is the big question for the yen.

The data

In February, the Tokyo CPI rose by 1.1%, better than 0.7% beforehand and 1% expected. Core CPI (excluding fresh food) rose by 0.9%, after 0.7% beforehand and 0.8% predicted. And “core core” CPI, which excludes both fresh food and energy, rose by 0.5%, stronger than 0.3% beforehand and 0.4% predicted.

In January, national CPI rose by 1.4% year over year, better than 1.3% expected. Core CPI by 1.3% as expected and “core core” by 0.7%, as predicted.

USD/JPY remained in range and didn’t really respond to the publication.


Contrary to growth figures for Q4 2013, inflation numbers did spike up in early 2014 towards the sales tax hike. This is good news for the government which can now expect stronger growth in Q1. It is also good news for the central bank, which has a target of 2% inflation. It does not seem too far at the moment.

Nevertheless, the core core inflation is still lower than in the euro-zone and lower than in Canada: two low inflation economies which fear the “Japanese disease”. Japan has a big gap to close. Prices could still accelerate more until the end of Q1, just before the sales tax hike comes into place, but the BOJ might still fear that prices could slip back down.

A rise in taxes and front running the tax could trigger far less spending, lower prices and a weaker economy. To battle that, another injection of monetary stimulus cannot be ruled out as Kuroda’s new policy celebrates one year.

So, we can probably expect another downfall for the yen, and another move upwards for USD/JPY, assuming of course that the taper train is on track, and the recent Fed minutes showed that it is.