Japanese inflation still warrants monetary easing

trading-living-room.jpg

Japan’s inflation misses forecasts being a reason why monetary policy will not be tightened any time soon

Greenback’s rout continues in early trading, USDJPY getting closer key technical levels  
Chinese equity market soars despite listless moods across the pond
 
Being several hours after the ECB press conference one may say that Draghi’s dovish rhetoric has kicked in at least to some extent. The EURUSD came off from above 1.25, however it was not sufficient to see a larger rebound in the US dollar index being traded 0.4% lower at the time of writing. Taking a look at the Asian session one needs to single out Japanese inflation which albeit turned out to be sub-par sending a clear message to market participants that the BoJ will not be in a hurry to begin unwinding its outstandingly loose monetary policy.
Japanese inflation came in below forecasts reinforcing the BoJ’s dovish stance.


The overall national CPI rate in December showed 1% yoy against the consensus at 1.1% yoy whereas the core gauge stripping out fresh food came out at 0.9% yoy matching expectations. Nevertheless it needs to be said that the BoJ has become more focused on other kind of core inflation which excludes both fresh food and energy and this gauge did not change compared to the prior value at 0.3% yoy missing the street’s call though (0.4% yoy). By and large, today’s set of inflation readings is not of course a game changer, what’s more it could be seen as a confirmation for loose monetary policy there. Keep in mind the target is set at 2% so there is still a long way before striking in a durable manner.


In this respect it’s worth citing Kuroda who spoke in Davos on Thursday saying "there is still quite some distance to our 2% inflation target. It’s inappropriate to talk about an exit strategy or a change in policy". He also alluded to US Treasury Secretary Mnuchin’s remarks on the US dollar claiming that the G7 agreed exchange rates should move stably reflecting economic fundamentals. Japanese finance minister Aso joined Kuroda declining comments on other countries’ remarks on FX. What does it mean for currency traders? So one may suspect that the current level of the yen is not yet a concern for the Japanese monetary authorities but it could be should the JPY strengthen going forward. Therefore it needs to be cognizant of potential FX interventions from the BoJ aimed at boosting the USDJPY after a quiet nod to the stronger dollar made be Mnuchin.


The USDJPY continues falling but pivotal technical supports might reverse the ongoing move.
From a technical point of view there have been still no any bullish signals heralding a reversal of the current downtrend. However, the pair is getting closer key supports placed at 109 and 108.15 respectively thus a possible bullish candlestick around these levels might be a buying opportunity.


In spite of the facto that Wall Street did not make another records, the Chinese Hang Seng (CHNComp on xStation5) has had a remarkable day so far. The index is trading 3% higher just a while before the close and when we take a closer look at a weekly time frame it turns out that the current bull market is heated red-hot. It underlines risks surrounding the global equity market suggesting that declines could be inevitable in time.