In January, Japan’s Tokyo Consumer Price Index excluding fresh food rose by 2% year-on-year. This was slightly below the forecast of 2.2%.
Gold prices fell in various countries, including Pakistan, India, and Malaysia. The decline is attributed to a US government funding deal that boosted the US Dollar and prompted profit-taking.
Currencies And Their Movements
Currencies also saw movements, with GBP/USD softening to near 1.3750 as the US Senate advanced a spending deal to avoid a shutdown. Additionally, EUR/USD strengthened above 1.1950 amid uncertainty in US trade policy and concerns over the Federal Reserve’s independence.
In the crypto market, Bitcoin, Ethereum, and Ripple experienced sell-offs, continuing weekly losses of nearly 6%, 3%, and 5% respectively. Bitcoin neared the November lows at $80,000, while Ethereum slipped below $2,800.
Microsoft saw a sell-off that resulted in a $400 billion market impact. This was noted as the second highest on record despite other market indices also experiencing pullbacks.
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Tokyo Core Inflation Update
Tokyo’s core inflation for January has come in at 2.0%, which is below the 2.2% we were all forecasting. This cooling in price pressures significantly dampens expectations for an imminent Bank of Japan (BoJ) rate hike. This data suggests the BoJ has room to remain patient before tightening its monetary policy.
For derivative traders, this points towards a weaker yen in the coming weeks. With the US Federal Reserve holding its policy rate steady through late 2025, the interest rate difference between the US and Japan is set to remain wide. We should consider buying call options on the USD/JPY pair, as the path of least resistance appears to be upwards.
This dovish outlook is also a positive signal for Japanese stocks. The Nikkei 225, which we saw post a strong performance in 2025, benefits from the prospect of continued low borrowing costs. We view buying calls on the Nikkei as a favorable trade heading into the BoJ’s March meeting.
Implied volatility on yen options likely saw a brief jump on this news, but we expect it to settle down. With the odds of a policy change now pushed further out, the certainty could depress volatility. This may open up opportunities to sell premium through strategies like short straddles if you anticipate a period of range-bound trading.
This situation is reminiscent of what we observed in the 2023-2024 period from our perspective last year. After the initial global inflation shock, Japan’s price pressures also moderated faster than in other G7 nations. The BoJ’s history of caution then supports the view that they will wait for much more data before making a move.
