Tokyo\u2019s CPI excluding fresh food rose 1.8% year on year in February. This was above the forecast of 1.7%.<\/p>\n
The reading indicates a 0.1 percentage point difference versus expectations. The data refer to Japan\u2019s Tokyo core inflation measure for February.<\/p>\n
This morning’s Tokyo CPI reading is a critical signal for us. Coming in at 1.8%, it has surpassed expectations and brings the Bank of Japan’s 2% inflation target clearly into view. This increases the probability of a policy rate hike at the next BoJ meeting in March.<\/p>\n
In the currency market, we should anticipate a stronger yen as rate hike speculation builds. This suggests positioning for a lower USD\/JPY exchange rate by purchasing puts or establishing bearish option spreads. This data is the most significant since the BoJ’s slow normalization process began back in 2025.<\/p>\n
For interest rates, this inflation print will apply upward pressure on Japanese Government Bond (JGB) yields. We see an opportunity in shorting JGB futures, as the market will price in a more aggressive policy stance from the central bank. As of January 2026, the national core CPI was hovering around 1.6%, making this Tokyo number an unwelcome acceleration for the BoJ.<\/p>\n
On the equity side, a stronger yen typically acts as a headwind for Japan’s export-heavy Nikkei 225 index. We believe it is now wise to hedge long equity portfolios by buying Nikkei puts. This is a prudent defensive move, especially considering the strong market performance we saw throughout last year.<\/p>\n
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