Inflation Announcement in Japan Fuels Continued Rise of the Yen
Economic indicators in Japan showed a significant change in November. In the capital Tokyo, core consumer inflation accelerated in November, remaining above the central bank's 2% target. This indicates that price pressures are broadening and raises expectations for a possible interest rate hike at the Bank of Japan's (BOJ) next policy meeting in December. Following the released data, the yen appreciated as market participants anticipate the BOJ will raise short-term interest rates from the current level of 0.25%.
The core consumer price index (CPI), excluding fresh food costs, saw a year-on-year increase of 2.2% in November. This rise exceeded market expectations and marked an acceleration from the 1.8% increase in October. Another index, which the BOJ monitors as a better indicator of demand-driven inflation, excluding both fresh food and fuel costs, also rose by 1.9% year-on-year in November.
Industrial production and retail sales are projected to show a 0.5% year-on-year decline in December, with a forecasted decrease of 2.2% for November. In previous periods, these rates were recorded as 3.7% for December and 8.3% for November, respectively. Meanwhile, broad retail sales increased by 1% year-on-year in October, while core retail sales rose by 1.6%. However, this was below market expectations.
Japan's industrial production data underscores the weak trend in the country's industrial activities. Although the rise in retail sales indicates limited improvement in consumer spending, it reveals the uncertainties in the economic recovery process.
Unemployment and employment data showed that the unemployment rate stood at 2.5% in October, aligning with market expectations and slightly increasing from the previous month. The employment-to-job openings ratio was recorded at 1.25, remaining unchanged from the same period last year. These indicators reflect stability in Japan's labor market, while the limited increase in the unemployment rate highlights continuous strong demand in the job market.
Inflation rates and interest rate hike expectations revealed that the headline Consumer Price Index (CPI) in the Tokyo area increased by 2.6% year-on-year in November. The core CPI also surpassed expectations with a rise of 2.2%. These figures have heightened expectations for the central bank to reconsider interest rates in Japan.
The approach of the Bank of Japan regarding interest rates in upcoming policy meetings is being closely monitored. The increase in inflation shapes market participants' demands and expectations, while the yen's appreciation signals possible steps regarding monetary policy.
Following the inflation data, the yen continued its rise. After the release of the figures, the yen appreciated against the dollar. The USD/JPY started the day with a 1% decline, moving towards the 150 threshold, thus maintaining its downward trend since November 15, with a total drop of 3% over the last two weeks.