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

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Cohen

Forex

USD/CAD remains steady as the US Dollar faces challenges due to improved market sentiment.

US Initial Jobless Claims increased to 219,000 in the previous week, surpassing the expected 215,000.

The Bank of Canada may rethink to cut rates amid elevated inflation in Canada.

USD/CAD moves little after registering losses in the previous session, trading around 1.4170 during the Asian hours on Friday. The pair lost ground as the US Dollar (USD) struggled amid weak jobless claims data and mixed signals from the Federal Reserve (Fed). Traders will keep an eye on the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) for February, which is due later on Friday.

US Initial Jobless Claims for the week ending February 14 increased to 219,000, surpassing the expected 215,000. Continuing Jobless Claims also rose slightly to 1.869 million, just under the forecast of 1.87 million.

Fed Governor Adriana Kugler noted on Thursday that US inflation still has "some way to go" before reaching the 2% target, acknowledging uncertainty ahead, according to Reuters. Meanwhile, St. Louis Fed President Alberto Musalem highlighted the potential risks of stagflation and rising inflation expectations.

The US Dollar Index (DXY), which measures the USD against six major currencies, gained ground near 106.50 at the time of writing. However, the DXY faced challenges amid improved market sentiment after US President Donald Trump announced potential progress in trade negotiations with China, easing market concerns over tariffs.

However, US President Donald Trump announced plans to impose import tariffs on lumber and forest products next month, which could weigh on the Canadian Dollar (CAD) as Canada remains a leading global producer and exporter.

Meanwhile, the Bank of Canada (BoC) may rethink cutting rates following the release of January’s CPI data, which showed elevated inflation in Canada. Traders will be closely watching Friday’s Canadian Retail Sales report and a speech by BoC Governor Tiff Macklem for further policy signals.

Source: FXSTREET

Risk Warnings and Disclaimers

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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

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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

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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

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Alex

Commodity

Economic

WTI struggles to capitalize on a four-day-old recovery from the YTD trough touched this week.

Hopes for a solid US fuel demand and concerns over supply disruptions in Russia lend support.

The mixed fundamental backdrop warrants caution before placing aggressive directional bets.

West Texas Intermediate (WTI) US Crude Oil prices oscillate in a narrow trading range band during the Asian session on Friday and consolidate gains registered over the past four days. The commodity currently trades around the $72.40 region, below a one-week high touched on Thursday, and seems poised to snap a four-week losing streak.

The Energy Information Administration reported on Thursday that US Crude Oil stockpiles rose, while gasoline and distillate inventories fell last week. This, along with concerns over supply disruptions in Russia, acts as a tailwind for the black liquid. In fact, hopes for a peace deal between Russia and Ukraine seem to have faded in the wake of intensifying Ukrainian drone attacks on Russian Oil pumping stations.

Apart from this, the recent US Dollar (USD) slump to the lowest level since December 10, which tends to underpin the USD-denominated commodities, lends additional support to Crude Oil prices. However, worries that US President Donald Trump's trade tariffs could weaken the global economy and dent fuel demand hold back traders from placing aggressive bullish bets and contribute to capping the black liquid.

Furthermore, signs of slowing demand from the Eurozone and China warrant some caution before positioning for an extension of a modest recovery from the year-to-date low, around the $70.15 region touched earlier this week. Traders now look forward to the release of global flash PMIs, which might provide a fresh insight into the economic health and produce short-term trading opportunities around Crude Oil prices.

Source: FXSTREET

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

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Alex

Forex

GBP/USD reached a two-month high at 1.2674 as the US Dollar struggled amid weak jobless claims data.

US Initial Jobless Claims increased to 219,000 in the previous week, surpassing the expected 215,000.

Traders remain cautious due to ongoing concerns about the UK’s economic outlook.

GBP/USD edged lower after hitting a two-month high of 1.2674 on Friday, trading around 1.2670 at the time of writing during the Asian session. However, the pair gained ground as the US Dollar (USD) struggled amid weak jobless claims data and mixed signals from the Federal Reserve (Fed).

Additionally, the GBP/USD pair saw gains amid improved market sentiment after US President Donald Trump announced potential progress in trade negotiations with China, easing market concerns over tariffs.

Fed Governor Adriana Kugler noted on Thursday that US inflation still has "some way to go" before reaching the 2% target, acknowledging uncertainty ahead, according to Reuters.

Meanwhile, St. Louis Fed President Alberto Musalem highlighted the potential risks of stagflation and rising inflation expectations. Atlanta Fed President Raphael Bostic kept the door open for two rate cuts this year, depending on economic conditions.

Traders remain cautious due to ongoing concerns about the UK’s economic outlook. Bank of England (BoE) Governor Andrew Bailey warned this week that economic growth is expected to remain sluggish, with a softening labor market.

The Pound Sterling (GBP) tried to gain traction after a hotter-than-expected UK Consumer Price Index (CPI) report for January released on Wednesday. Governor Bailey had already indicated that a short-term inflation spike, driven by volatile energy prices, wouldn’t be persistent.

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.03%	0.00%	0.59%	0.01%	-0.02%	-0.04%	0.10%
EUR	-0.03%		-0.03%	0.55%	-0.03%	-0.05%	-0.07%	0.06%
GBP	-0.01%	0.03%		0.59%	0.00%	-0.03%	-0.05%	0.09%
JPY	-0.59%	-0.55%	-0.59%		-0.53%	-0.58%	-0.61%	-0.47%
CAD	-0.01%	0.03%	-0.00%	0.53%		-0.04%	-0.05%	0.08%
AUD	0.02%	0.05%	0.03%	0.58%	0.04%		-0.02%	0.11%
NZD	0.04%	0.07%	0.05%	0.61%	0.05%	0.02%		0.14%
CHF	-0.10%	-0.06%	-0.09%	0.47%	-0.08%	-0.11%	-0.14%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Source: FXSTREET

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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

USD/CAD Treads Water Above 1.4150 Ahead of US PMI Data

Source: FXSTREET

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

WTI Consolidates Below Mid-$72.00s; Seems Poised To Register Gains for the First Time in Five Weeks

Source: FXSTREET

GBP/USD Remains Above 1.2650 Near Two-Month Highs

Source: FXSTREET

Risk Disclosure