Japanese Inflation Accelerates, Raising Odds of Another Rate Hike

Economic

Summary:

Core inflation accelerated faster than expected in January, while Japan’s service-led recovery continued. The Bank of Japan (BoJ) is expected to deliver a 25 bp rate hike in May, though a sharp rise in the JPY complicates the economic outlook.

Fresh food prices propelled inflation higher in January

Japan’s consumer price inflation accelerated to 4.0% year on year in January, in line with market consensus (vs 3.6% in December), as fresh food surged 21.9% (vs 17.3% in December). Rice prices skyrocketed 70.9%. Excluding fresh food, core CPI rose faster than expected to 3.2% (vs 3.0% in December, 3.1% market consensus). Costs of eating out have been on the rise for the past three months. Inflation rose 0.5% month on month, seasonally-adjusted, with goods up 1.0% and service costs unchanged. We believe that the BoJ is likely to focus on core trends rather than headline inflation. Though in line with BoJ projections, price dynamics support the central bank’s rate normalization strategy.

JPY rising as market expectations for a rate hike increase

A variety of factors have market expectations pivoting toward rate hikes: recent hawkish comments from BoJ officials; stronger-than-expected GDP data; and a rising CPI. As such, 10Y Japanese government bond (JGB) yields rose significantly, while the JPY surged against the USD over the past week.

We believe that the BoJ prefers to avoid any sudden moves in market rates, as the currency reaction could dampen economic sentiment and activity. A sudden jump in long-term yields would increase uncertainty about corporate and government funding. Sharp JPY appreciation may hurt earnings. So, the BoJ will try to limit the extremes of market reactions. This morning, Governor Ueda told parliament that the BoJ will keep JGB buying operations flexible. Trading in the JPY and JGBs seemed to calm down somewhat after his remarks.

Flash PMIs advanced in February

Japan’s flash purchasing managers indexes showed services are helping to drive the economic recovery, while manufacturing remains sluggish. Overall, both indices improved from the previous month. The service PMI rose to 53.1 in February from 53 in January, marking the fourth consecutive month of expansion. The manufacturing PMI edged up to 48.9 from 48.7, but has remained in contractionary territory for eight months. Output and new orders were up. We are concerned that US tariffs will eventually dampen the economy. But so far, the negative impact hasn't materialised.

Inflation outlook uncertain

Tokyo inflation data, due out next week, is expected to ease modestly in February. Food prices are likely to rise further, but renewed energy subsidy programmes should offset some gains. We also believe the government is likely to introduce measures to stabilise rice prices, which could tame broader food costs. Yet with Trump's tariff policies intensifying, the BoJ will remain quite cautious going forward.

Core inflation is likely to stay above 2% for a considerable time, which allows the terminal rate to reach 1.25% by 2026

Japanese Inflation Accelerates, Raising Odds of Another Rate Hike_1

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

ING

Economic

The EU’s vision on Agriculture and Food is clearly farmer-centric. But what's in the document – and equally, what isn't – provides valuable guidance for food manufacturers, traders and retailers about the direction of EU policy towards 2040. With limited guidance on how to achieve emission cuts, the Commission remains open to a range of solutions.

Greenhouse gas reduction targets – ambition versus reality

In its long-awaited Vision on agriculture and food, the EU states that the Commission ‘expects agriculture to achieve the emission cuts in alignment with the EU's climate target for 2030’, but without mentioning the 55% target explicitly. That commitment from policymakers should comfort corporates in the food industry, given that their Scope 3 targets largely rely on progress at farm level.

Still, we remain largely in the dark on exactly how the EU Commission plans to achieve this, aside from the fact that incentives, carbon removals and technological advancements should help to do the trick. And we have doubts on how realistic it is given that the reduction in agricultural emissions currently stands at around -25% compared to 1990. With just five more years to go, projections from the European Environment Agency show that the sector will be falling short of the broader target.

Voluntary benchmarking – EU could learn from existing schemes

Rolling out mandatory on-farm benchmarking on sustainability parameters is proving to be a political no-go. Still, the Commission aims to get more farmers engaged in sustainability benchmarking by developing an ‘on-farm sustainability compass’ with input from various stakeholders. Some food manufacturers have already rolled out such schemes. We see a clear opportunity for these companies to share best practices with policymakers – and in turn, provide valuable input for the Commission's 'Compass'.

Generational renewal – farmers of the future

The fates of farmers and food processors are often intertwined. A lack of perspective for farmers could reduce supply and lead to higher prices and excess capacity in production, which is most worrying for companies that depend on a ‘local’ farm base (like meat, dairy and sugar processors). So if the Commission is taking the lead on a Generational Renewal Strategy to slow down the drop in the number of farmers and the pressure on farm land, that’s also positive news for food companies and suppliers of farm inputs.

Don't expect any bold or swift action on livestock

It’s not surprising that the Commission is promising a long-term vision for the livestock sector, given its economic weight; livestock accounts for a third of EU food exports. However, it also remains the most carbon-intensive part of the agri-food value chain. The direction the Commission takes on this will be crucial, particularly for EU meat and dairy processors. The Vision mentions technological advancements as a solution, including feeding strategies. In our view, that's a signal that policymakers will continue to be supportive of feed additives and other feed based solutions. But for more particular recommendations, we have to await the results from a ‘livestock work stream’ that still needs to be set up.

Emissions Trading System – agriculture not in scope

You can search long and hard for it, but you won’t find it in the text. We think it's safe to say this won’t be introduced in the foreseeable future.

Trade: Directorate-General for Agri’s stance on trade creates challenges and opportunities

The Vision takes a tougher stance on the residue levels of the most hazardous pesticides on imported food products like fruits and vegetables, and makes it clear that high EU standards on animal welfare should also apply to imported meat, dairy and eggs. This is supportive for EU farmers as it raises the bar for their competitors. For some EU importers of fruits and vegetables, like citrus fruit, it will require more effort to make sure their suppliers comply.

At the same time, the drive for more reciprocity when it comes to animal welfare standards makes it more complicated to strike trade deals with large meat exporters such as Australia. The Vision also promises a ‘comprehensive protein strategy’, which would primarily focus on animal feed and reducing dependencies on imports (mainly from South America). This is at odds with the recently agreed EU Mercosur trade agreement and could resurface during the ratification process of the trade agreement, which is expected in the second half of 2025.

EU funding: Agriculture faces fierce competition for EU funds

Food security, energy security, safety – they’re all important. But when you take into account what the Vision says about public support for agriculture (better targeted) and the broader debate on the next EU budget, it seems quite probable that the share of agriculture in the budget will decrease – especially because energy and defence security are critical issues for the EU. The fact that there is no mention of an Agri-Food Just Transition Fund in the Vision is a clear signal that calls by stakeholders for more public funding are not being answered. As a result, we expect more calls from policymakers to the private sector to step in when it comes to financing.

Steering demand: EU delegates responsibility to national governments

As we've indicated previously, there is very little appetite to influence or steer consumer demand at the EU level. Scientists consider a partial shift away from animal-based to plant-based food an effective strategy to make the food system more sustainable – but plant-based food isn’t featured in the Vision in any meaningful way. Part of the argumentation is that the main competence lies not in Brussels but with national governments. Since many national governments aren’t keen on demand-side policies either, we expect that these tools will largely remain in the toolbox.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Alex

Economic

Forex

Key Highlights

USD/JPY declined heavily below the 151.50 support zone.

A key bearish trend line is forming with resistance at 151.25 on the 4-hour chart.

EUR/USD is eyeing a fresh move above the 1.0520 resistance zone.

GBP/USD could soon attempt a move toward the 1.2750 level.

USD/JPY Technical Analysis

The US Dollar started a major decline from well above 154.00 against the Japanese Yen. USD/JPY traded below the 152.50 and 151.50 support levels.

Looking at the 4-hour chart, the pair settled below the 150.50 support, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even dived below the 150.00 level.

It is now showing many bearish signs. On the downside, immediate support sits near the 149.20 level. The next key support sits near the 148.80 level.

The main support could be 148.00. Any more losses could send the pair toward the 145.00 level. On the upside, the pair seems to be facing hurdles near the 150.50 level. The next major resistance is near the 151.20 level.

There is also a key bearish trend line forming with resistance at 151.25 on the same chart. The main resistance is now forming near the 151.50 zone.

A close above the 151.50 level could set the tone for another increase. In the stated case, the pair could even clear the 152.50 resistance.

Looking at EUR/USD, the pair remained stable above 1.0450 and might aim for more gains above the 1.0520 resistance.

Upcoming Economic Events:

Euro Zone Manufacturing PMI for Feb 2025 (Preliminary) – Forecast 47.0, versus 46.6 previous.

Euro Zone Services PMI for Feb 2025 (Preliminary) – Forecast 51.5, versus 51.3 previous.

US Manufacturing PMI for Feb 2025 (Preliminary) – Forecast 51.5, versus 51.2 previous.

US Services PMI for Feb 2025 (Preliminary) – Forecast 53.0, versus 52.9 previous.

Source: ACTIONFOREX

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Economic

Japan's core consumer inflation hit 3.2% in January for its fastest pace in 19 months, data showed on Friday, reinforcing expectations that the central bank will keep raising interest rates from levels still seen as low.

Bond yields rose on the data, as markets factor in the chance that the Bank of Japan (BOJ) could hike interest rates more aggressively than initially thought, as inflationary pressure mounts.

The year-on-year increase in the core consumer price index (CPI), which excludes fresh food prices, slightly exceeded a median market forecast for a gain of 3.1% and followed December's rise of 3.0%.

"While services inflation isn't accelerating that much, goods inflation isn't slowing either," said Ryosuke Katagi, market economist at Mizuho Securities.

"The BOJ will likely see scope to raise interest rates, on the view price conditions are moving in line with its forecast."

A separate index stripping out costs of both fresh food and fuel, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 2.5% in January from a year earlier, the data showed.

It was the fastest year-on-year pace since March 2024, when the index rose 2.9%.

The two-year Japanese government bond (JGB) yield rose 1.0 basis point (bps) from Wednesday to stand at 0.830% after the data, for its highest level since October 2008.

For nearly three years, inflation has exceeded the central bank's target of 2%, underlining rising inflationary pressure that has prompted hawkish remarks from BOJ policymakers, such as Wednesday's comments by board member Hajime Takata.

The BOJ raised its short-term interest rate to 0.5%, from 0.25% in January, reflecting its conviction that Japan was making progress in sustainably achieving its inflation target of 2%.

BOJ governor Kazuo Ueda has signalled his readiness to keep raising rates if wages continue to increase and underpin consumption, thereby allowing firms to keep hiking pay.

The BOJ has said solid wage growth will prod service-sector firms to pass on rising labour costs, and replace rising raw material prices as the key driver of inflation in Japan.

But stubbornly high prices of fuel and food throw into doubt the chance that cost-push pressure will dissipate. In January, households still battled soaring prices of rice, vegetables and other food, as well as a 10.8% hike in energy costs.

Headline consumer inflation, including fresh food prices, hit 4.0% in January, accelerating from 3.6% the previous month, and standing at their highest in two years.

By contrast, services inflation rose 1.4% in January from the previous year, slowing from a gain of 1.6% in December, the CPI data showed.

Japan's economy expanded an annualised 2.8% in the final quarter of last year on robust business expenditure and consumption, shoring up the BOJ's case for more rate hikes.

A majority of economists polled by Reuters expect the BOJ to hike rates once more this year, most probably during the third quarter, to 0.75%.

Source: Theedgemarkets

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Justin

Economic

Bank of Korea Gov. Rhee Chang-yong speaks in this Feb. 18 photo.

The Korean central bank is widely expected to lower its policy rate by 0.25 percentage point next week in an effort to prop up the economy, a poll showed Friday.

According to a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 20 out of 21 local analysts and experts polled predicted the Bank of Korea (BOK) will cut its base rate to 2.75 percent from the current 3 percent at its next rate-setting meeting slated for Tuesday.

In January, the BOK kept its benchmark interest rate frozen in the wake of the weak local currency amid political chaos and uncertainties stemming from U.S. President Donald Trump's new administration.

The on-hold decision came on the heels of two rate cuts in the October and November meetings.

"The country is facing growing downside risks centering on weak domestic demand, while the won's further weakness seems limited, which would lead the BOK to lower the policy rate by 25 basis points," said Kim Seon-tae, an expert from KB Kookmin Bank.

Nineteen out of the 21 analysts polled anticipated the key rate to be lowered to 2.5 percent in the first half of this year.

The central bank is scheduled to present an adjusted growth forecast Tuesday. BOK Gov. Rhee Chang-yong has hinted at slashing the outlook to around 1.6 percent from its previous forecast of a 1.9 percent expansion.

Korea's potential growth rate is at 2 percent, and this year may mark the first time ever that the country's yearly growth rate falls below the level.

Source: Koreatimes

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. UK January job postings increase, dispelling some gloom in the labor market

2. Japan's January inflation rate surged:

3. Bostic: Two rate cuts are expected in 2025 amidst pervasive uncertainty

4. Makhlouf: Disinflationary Trend Faces Risks

5. Bullock: Reluctant to delay rate cuts

6. Musalem: Inflation expectations warrant vigilance

[News Details]

UK January job postings increase, dispelling some gloom in the labor market

The number of job postings in the UK increased in January for the first time in seven months, indicating that the UK's labor market may be weathering the impact of increased employer tax burdens. The Bank of England is also monitoring the labor market when considering when to cut interest rates again. The expected slowdown in hiring may curb long-term inflationary pressures. REC Deputy CEO Kate Shoesmith said: "While boards across the country are having difficult discussions, today's report suggests that it is too early to be pessimistic about the overall outlook for the UK economy in 2025.

Japan's January inflation rate surged

Japan's CPI rose 4% YoY, according to figures released on Friday, the highest level since January 2023. Core CPI increased by 3.2% YoY, reaching its highest point since June 2023. "Core" inflation, which excludes fresh food and energy prices and is closely monitored by the Bank of Japan (BOJ), edged up to 2.5%.

The latest inflation figures strengthen the case for the BOJ to raise interest rates. The BOJ considered tightening rates at its January meeting, and its summary of opinions cautioned against inflation risks and a weaker yen.

Makhlouf: Disinflationary Trend Faces Risks

The disinflationary trend is at risk, with a highly uncertain outlook. The European Central Bank has cut rates five times since June of last year and is expected to lower the deposit rate to 2.5% next month. Policymakers are confident that inflation will fall to 2% this year, but they are concerned that the instability of the Eurozone economy could drag down price growth below the target.

Bostic: Two rate cuts are expected in 2025 amidst pervasive uncertainty

Atlanta Fed President Bostic stated on Thursday that the path to price stability, despite some market volatility, remains intact. Housing costs have been a significant contributor to persistent inflation, although market-based measures of rent price growth are more subdued than official inflation statistics. This suggests that the softening in market rents should eventually be reflected in inflation figures.

He supports a reduction in monetary policy restrictiveness, citing a shift in the risk balance between the dual mandate of price stability and maximum employment. While inflation has declined significantly, it remains above target, and the urgency of achieving price stability is less pressing than before, given a labor market that, while cooling, remains robust.

The Federal Reserve should still be able to cut interest rates by 50 basis points this year, although the impacts of former President Trump's trade and immigration policies remain highly uncertain. However, there is considerable uncertainty surrounding this forecast, with numerous factors potentially exerting influence in either direction.

Makhlouf: Disinflationary Trend Faces Risks

Bullock: Reluctant to delay rate cuts

Reserve Bank of Australia (RBA) Governor Bullock stated on Friday that the RBA is averse to delaying the easing of monetary policy, a factor contributing to the RBA's decision to cut interest rates this week for the first time in over four years. Acknowledging to lawmakers that the central bank was late in initiating rate hikes during the previous tightening cycle, she indicated that the RBA is now more cognizant of the policy lags when considering the easing of policy.

Musalem: Inflation expectations warrant vigilance

In his Thursday remarks, St. Louis Federal Reserve President Musalem noted that while inflation is still expected to converge toward the Federal Reserve's 2% target, market indicators and survey data suggest a notable rise in short-term inflation expectations over the past three months. This development could necessitate a more restrictive monetary policy stance.

The risks of inflation remaining above 2% or accelerating appear skewed to the upside. Furthermore, another potential scenario must be considered: a weakening labor market coupled with a halt or reversal in the disinflationary trend. Stagflation, characterized by sluggish economic growth and elevated inflation, would present the most challenging environment for the central bank, forcing the Federal Reserve to prioritize either its employment or inflation mandate.

Given robust economic expansion, a tight labor market, accommodative financial conditions, core inflation exceeding 2%, and recent increases in some inflation expectations, the risk of inflation expectations becoming unanchored is elevated compared to a scenario characterized by economic slack and a lack of experience with high inflation among consumers and businesses. The current environment presents a more challenging situation than previously observed.

If the inflation persists at its current above-target levels, or if inflation expectations indeed rise, a more restrictive monetary policy stance may be warranted relative to the baseline trajectory.

[Today's Focus]

UTC+8 16:15 Preliminary reading of France's manufacturing PMI for February

UTC+8 16:30 Preliminary reading of Germany's manufacturing PMI for February

UTC+8 17:00 Preliminary reading of Eurozone's manufacturing PMI for February

UTC+8 17:30 Preliminary reading of UK's manufacturing PMI for February

UTC+8 22:30 Speech by ECB Chief Economist Lane

UTC+8 22:45 Preliminary reading of US S&P Global Manufacturing PMI for February

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Cryptocurrency

Bitcoin (BTC/USD) is holding above $95k but facing significant resistance.

While spot Bitcoin ETFs have attracted substantial investments, there have been recent net outflows, and on-chain data suggests a cooling down in speculative appetite.

Strategy’s potential Bitcoin purchase, following a $2 billion fundraising, could be a catalyst for a future bull run.

Bitcoin has regained momentum after finding support at the key $95k level this week before rising to trade at 98357 at the time of writing. The recent consolidation suggests that Bitcoin could be ready for its next big rally, with a move higher looking appealing once more.

Crypto Heatmap, February 20, 2025

Source: TradingView (click to enlarge)

ETF Flows

Even though Bitcoin’s price fell from its all-time high on January 20, data from CoinShares shows that spot ETFs tied to Bitcoin have still attracted a huge $5.6 billion in new investments.

However, over the last few days we have seen a consistent amount of net outflows with figures of 60.7, 64.1 and 94.6 million USD in net outflows since Tuesday.

Source: Farside Investors

The Week on Chain – Glassnode Data Reveals Downside Risks

Money flowing into the market is slowing down, and trading in derivatives is dropping. The way short-term investors are buying now looks similar to May 2021, which was a tough time for the market.

Overall, in recent weeks markets are seeing the momentum of capital inflows has declined for all digital assets. This signals a meaningful cooling down in speculative appetite and alludes to a potential for capital rotation out of riskier assets on the road ahead.

This is in line with the overall market sentiment at the moment.Although US stock markets continue to hold near highs, the rise of Gold is a clear sign that markets remain nervous as haven demand continues to propel the precious metal to fresh highs.

Momentum in spot markets is slowing down, and less money is going into perpetual futures. This drop in demand has caused a big decline in open interest across major assets, showing less speculative trading and lower profits from cash-and-carry strategies.

The drop in open interest shows that traders are cutting back on risky leveraged bets, likely because the market feels weaker and less certain. The biggest decline is in Memecoins, which usually attract short-term traders but quickly lose popularity when confidence fades.

Source: Glassnode

Microstrategy or ‘Strategy’ Gearing Up for Fresh Buys?

MicroStrategy or as we should get used to calling them, Strategy didn’t buy any Bitcoin last week, keeping its total at 478,740 BTC for the second time.

However, MicroStrategy has hinted at a new Bitcoin purchase with its recent fundraising effort. On February 20, the company announced it had successfully priced a $2 billion offering of 0% convertible notes due in 2030. The deal, set to close on February 21, also gives buyers the option to purchase an extra $300 million in notes.

Will such a purchase prove to be the catalyst for another bull run?

Technical Analysis BTC/USD

Bitcoin (BTC/USD) from a technical standpoint on the daily timeframe sees price eyeing a breakout following a period of consolidation.

The consolidation between 94000 and 100000 has lasted for the last two weeks with Tuesday seeing price dip to a low of 93340 before reclaiming the 95000 handle.

Thursday daily candle did close back above the 100-day MA resting at 97899 but there are significant hurdles ahead. The 50-day MA rests at 99059, just shy of the psychological 100000 level.

Bitcoin (BTC/USD) Daily Chart, February 20, 2024

Source: TradingView.com (click to enlarge)

Dropping down to a two-hour chart and there may be scope for a short term pullback. Significant support rests below current price as we have the 50,100 and 200-day MA converging between the 96000-97000 handles.

This makes this a key area of confluence which could serve as a base for a move toward the 100000 psychological level and beyond.

Immeidate support rests at 97000 before the key 95000 handle comes back into focus.

Resistance rests at 99059 and 100000 before markets will turn their attention toward the 102157 resistance handle.

Bitcoin (BTC/USD) Two-Hour (H2) Chart, February 20, 2024

Source: TradingView.com (click to enlarge)

Support

97000

95000

93200

Resistance

99059

100000

102157

Source: ACTIONFOREX

Risk Warnings and Disclaimers

Add to Favorites

Daily News

Remarks of Officials

Central Bank

Forex

FastBull Events

FastBull Featured

Devin

Mohammad Omar

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data

Japanese Inflation Accelerates, Raising Odds of Another Rate Hike

Fresh food prices propelled inflation higher in January

JPY rising as market expectations for a rate hike increase

Flash PMIs advanced in February

Inflation outlook uncertain

Core inflation is likely to stay above 2% for a considerable time, which allows the terminal rate to reach 1.25% by 2026

Why the EU’S New Agri-Focused Vision Matters for the Food Industry

Greenhouse gas reduction targets – ambition versus reality

Voluntary benchmarking – EU could learn from existing schemes

Generational renewal – farmers of the future

Don't expect any bold or swift action on livestock

Emissions Trading System – agriculture not in scope

Trade: Directorate-General for Agri’s stance on trade creates challenges and opportunities

EU funding: Agriculture faces fierce competition for EU funds

Steering demand: EU delegates responsibility to national governments

USD/JPY Nosedives—Can Bulls Prevent a Bigger Collapse?

Source: ACTIONFOREX

Japan’s Core Inflation Hits 19-month High, Keeping Alive Boj Rate-hike Bets

Source: Theedgemarkets

BoK Expected to Cut Interest Rate Next Week

Source: Koreatimes

February 21st Financial News

[Quick Facts]

[News Details]

[Today's Focus]

Bitcoin (BTC/USD) Holds Above $95K but Faces Significant Resistance Ahead

Source: TradingView.com (click to enlarge)

Source: ACTIONFOREX

Risk Disclosure