USD/JPY is nearing 150.00, with resistance observed around 152.00, according to FX analysts. February’s CPI data from Japan showed mixed results, with headline CPI at 3.7% y/y and core CPI ex. food at 3.0%.
Core ex-fresh food and energy increased to 2.6% y/y, matching expectations. The swaps market anticipates a BOJ terminal rate between 1.00% and 1.25% over the next two years, with a potential 25 basis point hike in September.
The BOJ’s limited tolerance for JPY depreciation restricts downside movement, suggesting a contained currency.
Inflation Trends In Japan
The recent inflation data out of Japan presents a mixed picture. February’s nationwide consumer price index rises by 3.7% year-on-year, while the core measure that excludes fresh food climbs by 3.0%. A narrower inflation gauge, which also strips out energy, edges up to 2.6%, which aligns with forecasts. Markets broadly expected these figures, so they do not alter the current pricing for central bank adjustments. However, they reaffirm the idea that underlying pressures remain persistent enough to keep policymakers cautious.
Trading in interest rate swaps points to a terminal rate between 1.00% and 1.25% over two years, reinforcing expectations of long-term tightening. A 25-basis point increase in September appears as the next probable step. Investors adjusting positions should be mindful of this pricing, particularly those focused on short-term volatility. The window for larger shifts narrows unless fresh information challenges these assumptions.
Meanwhile, pressure on the yen remains contained. With the currency hovering near 150.00 per US dollar, the upper limit of 152.00 emerges as a key level. The Bank of Japan maintains a stance limiting excessive weakness, making outsized depreciation difficult. Traders expecting a sharp break lower may find such moves curtailed.
Impact On Market Positioning
For those navigating derivatives markets, shifts in rate expectations and currency levels influence positioning. The Bank of Japan’s measured approach means sudden deviations are less likely without new catalysts. Anyone aiming to capitalise on short-term trades should be aware that major fluctuations require more than just current inflation trends—they often need a stronger shift in policy signals or external market forces.
