Japanese Yen Steady Ahead of CPI

The Japanese yen has edged higher on Thursday. In the European session, USD/JPY is trading at 132.09, down 0.27%.

The dust has settled after Tuesday’s dramatic events, when the yen shot up 3.7%. This followed the Bank of Japan’s shocking announcement that it would widen its yield curve control on 10 year bonds from 25 bp to 50 bp. The markets were completely blindsided, which could very well be what Bank of Japan was hoping for.

The markets hadn’t expected any policy moves until after Boj Governor Kuroda ends his term in April, but now there is talk of major policy moves before then, such as raising interest rates out of negative territory. The BoJ released minutes yesterday, but these are minutes of November meeting.

What will be of more interest to the markets is National Core CPI for November. The index is to inch up to 3.7%, up from 3.6% in October. Japan’s inflation rate is much lower than the US or the UK, but price pressures have nonetheless put the squeeze on households and businesses, which became accustomed to decades of deflation.

With economic conditions improving and inflation rising, There has been speculation that the BoJ might consider major policy moves in the short-term, such as exiting from its stimulus program. The BoJ showed this week that it was willing to make significant moves, and more tightening could be on the way.