Japan's inflation continues to rise, the Bank of Japan may raise interest rates again in July, the US dollar falls below 150 against the Japanese Yen

Japan's inflation accelerated faster than expected, rising at the fastest pace since the summer of 2023, and the market expects the Bank of Japan (BOJ) to raise interest rates again in July. The USD/JPY exchange rate fell below the 150 level yesterday, reaching its lowest point of the year. If it drops below the neckline again, the yen is expected to have further room for appreciation.

Japanese inflation continues to rise, and the Bank of Japan may raise interest rates again in July

According to Bloomberg, Japan's CPI, excluding fresh food, increased by 3.2% year-on-year in January, the largest rise since June 2023. This growth rate is slightly higher than the economists' forecast of 3.1%, mainly driven by the rise in processed food prices. The overall inflation rate accelerated from 3.6% to 4%, reaching this level for the first time in two years. The rise in fresh food prices has also exacerbated the overall inflation level, including a sharp increase in vegetable prices, including cabbage.

The report once again confirms that Japan's overall inflation rate is among the highest in the G7 group, highlighting recent comments from members of the Bank of Japan about the need to pay attention to the upward risks of inflation. Despite the three interest rate hikes by the central bank governor Haruhiko Kuroda in the past year, the continued rise in inflation has led to speculation that the next rate hike may come earlier than expected.

According to a survey by Bloomberg, most observers of the Bank of Japan expect the Bank of Japan to take further tightening measures in about six months, with July being the most popular time.

Japanese nominal wages are rising rapidly, supporting the Bank of Japan's interest rate hike decision

In addition, nominal wages in Japan have risen at the fastest pace in nearly 30 years, supporting the Bank of Japan's latest decision to raise interest rates and making it likely to take further tightening measures.

The market is closely watching the wage negotiations scheduled to end in March to assess the sustainability of wage growth. So far, the negotiations seem to be progressing smoothly, with reports that major companies such as Asahi Breweries and Aeon have committed to providing a salary increase of over 7% for some employees.

To keep real wages rising, a key issue remains inflation, as well as the continuous weakness of the yen leading to rising import prices. The rise in prices in Japan has reached or exceeded the Bank of Japan's 2% inflation target for nearly three years, putting pressure on consumer confidence.

USD/JPY broke below 150, a first this year

USD/JPY Exchange Rate fell below the 150 level yesterday, marking the lowest point so far this year and approaching the low point in December last year. If the price drops below the neckline again, the Japanese yen is expected to have further room for appreciation.

However, against the backdrop of the uncertainty sparked by Trump, officials from the Federal Reserve of the United States hinted at the possibility of delaying the rate cut. In addition, a series of announcements related to tariffs have intensified the inflation risk in the United States, which may weaken the trend of the Japanese yen.

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