Early on Friday morning, we will have Japanese inflation data. This is going to be in key focus this week after Governor Ueda’s comments on Wednesday where he stated that the BoJ still had some distance to sustainably achieve the 2% inflation target. It may surprise you to realise that the Bank of Japan still has negative interest rates and is yet to recognise inflation as a problem for the Japanese economy. In fact, the prospect of the end of deflationary forces has been boosting Japanese stocks recently.
Japanese inflation to rise on Friday
The headline inflation print for Japan has been 3.2% y/y for May. Early on Friday, it is expected to come in at 3.5%.
The core reading is expected to come in at 3.3% vs 3.2% prior. So, both metrics are expected to tick up. The super core is expected to remain elevated at 4.2% y/y.
What to watch
If the headline comes in above maximum market expectations of 3.3% for the core, above 4.3% for the super core, and above 3.5% for the headline then investors will seriously question Ueda’s assessment from this week. That would likely result in speculation returning in earnest that the BoJ will need to exit its yield curve control policy. This should potentially strengthen the JPY. So, watch the USDJPY carefully over the inflation print as any big surprises to the upside could well strengthen the JPY. However, will the inflation data surprise markets, or will there be a consensus print? Release is out at 00:30 UK time on Friday morning.