Tokyo's September inflation came in above expectations across all three main measures. The data was released on October 2 at 02:30 Moscow time. After the release, the yen strengthened, and USD/JPY fell below 158.00. For the market, these figures became an additional argument in favor of further tightening of the Bank of Japan's policy.
What exactly came out
Tokyo's headline consumer price index rose by 2.7% year on year against a forecast of 2.5%. A month earlier, the figure was 1.9%.
Core inflation excluding fresh food accelerated to 2.7% against a forecast of 2.4% and 1.8% in August. The measure excluding food and energy came in at 3.0% against the expected 2.5% and 2.0% a month earlier. All three measures came in above forecasts.
Why Tokyo data is so important
Tokyo inflation statistics are released about three weeks earlier than national data. That is why the market uses it as one of the first guides to price dynamics across all of Japan. The acceleration in the core measure from 1.8% to 2.7% is especially notable. This is no longer a change of a few tenths of a percentage point, but a substantial increase in inflationary pressure.
What this means for the Bank of Japan
The Bank of Japan continues to monitor how steadily inflation holds around and above the 2% target. At its September 18 meeting, the regulator raised the rate to 1.25%. The decision was made by a vote of 7 against 2. Two board members opposed it, considering inflationary pressure insufficiently sustained. The new Tokyo figures strengthen the arguments of supporters of further policy tightening. Expensive imports and high energy costs create additional pressure on prices.
How the yen reacted
After the release, USD/JPY fell below 158.00. The yen's strengthening is due to the fact that higher inflation increases the likelihood of further Bank of Japan rate moves. At the same time, the pair remains not far from weekly highs and is still holding gains for the week. On the upside, 159.00 remains an important level. On the downside, the reference point is around 156.52.
What's next
This evening, the US employment report, NFP, is released. For USD/JPY, this adds a second important variable. On the Japanese side, the market has received a stronger argument in favor of a further rate hike. On the American side, employment data will influence expectations for Fed policy and the dollar's dynamics. Later in October, Japan's national inflation statistics will be released. Monetary statistics also provide an additional signal: Japan's monetary base contracted by 15.7% year on year in August.
Did you watch how the yen reacted to these figures?
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