On Friday, the Japan's Cabinet office released Core Consumer Inflation (CPI) data. Based on that release, the data increased by 0.5 percent year-over-year in December.
Despite not meeting the growth expectations of 0.6%, it still remains at a two-year high so far. Meanwhile, the Core CPI data that does not include food and energy prices slumped.
It was slipped by 7 percent on an annualized basis. This figure continues the downward trend that has occurred in recent months. Fortunately, Japan's overall inflation data still rose from 0.6% to 0.8%.
A rise in Japan's data this morning is not expected to prompt it’s central bank (BoJ) to immediately halt its stimulus program. Core inflation is still well below the 2% target.
External Factor is the cause of Inflation in the Country
In addition, most of the upward trend in inflation is more due to the external factors. Those are the rising fuel prices and global supply chain bottlenecks.
In other words, the Japan's domestic demand is actually still weak. The BoJ's current focus is more on monitoring whether the rising workers' wages can increase households' purchasing power.
However, the prospect of rising wage levels of workers is still clouded by uncertainty as companies also face increasing production costs. The solutions need to be found.
USD/JPY Pair is Slumped
The Japan's core inflation release this morning more or less supported the yen's strengthening against the U.S. dollar. This condition is reflected in the PAIR USD / JPY.
That currency pair moved weaker in the range of 113.88. According to the analysts, the phenomenon of weakening USD versus Yen in recent days is an anomaly.
It is especially given that steadily rising U.S. bond yields should support the Greenback. Another theory is that the weakening of USD/JPY reflects the reaction of investors.
In this case is those who do the profit-taking after the prices hit highs. Thanks to recent speculation for a Fed rate hike which is made by so many parties in the market.
Before, the US Dollar was Quite Stable
The American dollar was fairly stable despite weaker U.S. Treasury bond yields and less than satisfactory economic data in that country. What was the detail position of that currency?
In the early hours of Friday morning trading session, the USD Index traded at 95.73, holding at a 3-day high. The America’s 10-year bond yield slipped from 1.902% to 1.305%.
Meanwhile, the Weekly Jobless Claims data also did not show the encouraging results. Based on the data, it actually increased to 286K although it is expected to decrease to 227K.
Even with the same noise in the unemployment claims numbers, there appears to be a reflection of the record increase in cases of COVID-19 Omicron variants.
That was said by Robert Frick, an economist at the Navy Federal Credit Union. However, if Omicron has reached the peak and the past pattern persists, then the Unemployment Claim should drop dramatically in the next two or three weeks.
The Analysts Start to Doubt the USD Bullish
Although the United States dollar is expected to be bullish this year, some analysts are starting to show doubts. One of them is Marc Chandler, an analyst from Bannockburn Forex in New York.
He said that this currency has softened this year. The economy in that country is facing thestrong winds. That is why; he is not as aggressive as people at the Fed.
According to him, There is a lot of monetary tightening to come, and the economy actually looks a little more fragile than expected. This puts the USD is at risk of a heavier second half than the first half of the year.
