David Kohl, Chief Currency Economist Julius Baer
Japanese inflation figures make the life of Japanese policy makers easier. Thanks to higher fresh food prices, the headline inflation rate moved to 1.3 per cent in January (after 1.0 per cent in December) and even the core rate went up. Without considering fresh food and energy prices, the figure only amounts to a much less impressive level of 0.4 per cent. This is higher than in the previous months, giving Bank of Japan (BoJ) Governor Haruhiko Kuroda confidence that he is on the right path. In its latest hearing before parliament, Kuroda said that the BoJ will stick to its ultra-loose policy, but refrained from mentioning additional measures. This is enough to upgrade our yen forecast and adjust our 3 months target for USD/JPY from 110 to 107. This is close to the current level, which materialised due to speculation that the BoJ will tighten policy and the denying of the BoJ to do so. We expect both forces to remain in place in the next three months.
The BoJ denying of tighter monetary policy in the light of higher inflation is not enough to weaken the yen from here. We move our 3 months USD/JPY forecast to 107.