Japan’s national consumer price index for December rose 2.6% year-on-year from 2.8% in November, according to the latest data released by the Japan Statistics Bureau on Friday.
More details reveal that the national CPI excluding fresh food reached 2.3% year-on-year in December versus 2.5% previously.
Market reaction
Following the Japanese inflation data, the USD/JPY pair was down 0.01% on the day at 148.16.
About the National Consumer Price Index in Japan
The National Consumer Price Index is released by the Census Bureau and is a measure of price movements obtained by comparing retail prices for a representative shopping basket of goods and services. The Consumer Price Index is the most important way to measure changes in purchasing trends. The purchasing power of the Japanese yen is being pulled down due to inflation. In general, a higher reading is considered positive for the Japanese Yen.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s current ultra-loose monetary policy, which relies on significant stimulus for the economy, has caused the yen to decline against major currencies. This process has been exacerbated recently by growing policy divergence between the Bank of Japan and other major central banks, which have chosen to raise interest rates sharply to combat decades-long high levels of inflation.
The Bank of Japan’s ultra-loose monetary policy stance has widened policy divergences with other central banks, especially with the US Federal Reserve. This is supported by the widening spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.