USDJPY Inflation in Tokyo Desaba and Surprises the Market – BOJ Will Fall Back?

[Igor Pereira]

We have just received data from Tokyo's CPI (Consumer Price Index), which historically serves as the most reliable previous indicator for Japan's national inflation. The result was a bucket of cold water in the expectations of aggressive monetary tightening.

By Igor Pereira Financial Market Analyst

All indices came below expected, indicating that inflationary pressure is cooling faster than the Bank of Japan (BOJ) projected.

• General CPI (Headline):

  • Result: +2.0%

  • Expected: +2.3%

  • Previous: +2.7%

  • Reading: A sudden deceleration. General inflation is touching the target of 2% of the central bank, removing the urgency of high interest rates to "fight overheating".

• CPI Core:

  • Result: +2.3%

  • Expected: +2.5%

  • Previous: +2.8%

• Core-Nucleum ICP (Core-Core):

  • Result: +2.6 %

  • Expected: +2.8 %

  • Previous: +2.8%

The USD/JPY impact (155.95)

The market reacted immediately by pricing a weaker yen. The pair USD/JPY is being negotiated near 155.95.

1. Questions about the BOJ: With inflation falling to 2.0%, the argument for the Bank of Japan to increase interest rates at the January meeting loses strength. If inflation is converging to the goal naturally, why risk breaking the economy with high interest rates?

2. Dollar Force: Without the support of a "hawkish" BOJ, the interest differential between US and Japan continues to favor the Dollar. This keeps USD/JPY sustained above 155.00.

• USD/JPY: High (buy) biases in the short term. The market will undo the bets that Japan would save the yen via high interest now.

• Gold (XAU/USD): A weaker yen usually helps strengthen the Dollar, which can create a wind of support or temporary consolidation for Gold. However, if the BOJ continue "lover" (printing money/keeping low interest), the thesis of devaluation of fiduciary currencies remains intact, which is structurally high for Gold.

The "ghost" of Japanese inflation disappeared momentarily. This gives the dollar a breather against the yen, but increases complexity to 2026: if Japan does not raise interest and inflation rises globally (energy), the yen can collapse in 2026, forcing an exchange rate intervention.

Stay tuned for the 156.60-90 in USD/JPY, it will be the DIARY key to structure breakage.

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