Japan\u2019s national CPI excluding fresh food rose 1.6% year on year in February. This was below the 1.7% forecast.<\/p>\n
The reading shows inflation excluding fresh food eased compared with expectations. The data point focuses on prices excluding fresh food items.<\/p>\n
This lower-than-expected inflation reading reduces pressure on the Bank of Japan to raise interest rates again soon. We should now reconsider the market consensus for a second rate hike by mid-year. The data suggests underlying price pressures are not as strong as previously thought.<\/p>\n
The most direct impact will be on the yen, which is likely to weaken further against the dollar. With the U.S. Federal Reserve holding rates firm around 3.5% through the end of 2025, the interest rate gap remains significant. This makes buying USD\/JPY call options for the coming weeks a logical strategy, targeting a move above the 155 level.<\/p>\n
We saw this play out last year after the Bank of Japan’s first small rate hike in November 2025. The market priced in a quick follow-up, but sluggish wage growth data from January, which came in at just 1.9%, already hinted that the central bank would have to remain patient. This CPI miss confirms that cautious stance.<\/p>\n
For equity traders, a weaker yen and a patient central bank are supportive of Japanese stocks, especially exporters. The Nikkei 225 has already gained over 8% since the start of the year, recently breaking through the 42,000 barrier. We should consider long positions in Nikkei futures to benefit from this continued tailwind.<\/p>\n
This situation feels similar to what we experienced back in 2024, when traders repeatedly tried to front-run a policy shift only for the BoJ to delay based on soft data. Given this, implied volatility on the yen may now decrease as the chance of a surprise rate hike has diminished. Selling some near-term volatility in USD\/JPY could therefore be profitable.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Japan\u2019s core CPI excluding fresh food rose 1.6% in February, slightly under the 1.7% forecast.<\/p>\n","protected":false},"author":103,"featured_media":17043,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-45306","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t