USD/JPY Breaks Above 146, Tokyo Core CPI Dips to 2.8%

• Tokyo Core CPI gains 2.8%, less than expected
• Powell and Ueda to speak at Jackson Hole symposium

USD/JPY posted small gains on Friday, enough to push above the symbolic 146 line. On the data calendar, Tokyo Core CPI dipped lower and Fed Chair Powell will address the Jackson Hole Symposium later today.

Tokyo Core CPI eases to 2.8%

Japan released the Tokyo Core CPI earlier today. This is the first inflation release of the month, making it a key event. In August, Tokyo Core CPI rose 2.8% y/y, down from 3.0% in July and just under the consensus estimate of 2.9%. Despite the drop in inflation, the indicator has remained above the Bank of Japan’s 2% target for some fifteen months. Earlier in the month, the so-called “core-core index”, which excludes fresh food and energy, remained at 4.0%. This points to broad inflationary pressure and raises questions about the BoJ’s insistence that inflation is transient.

The BoJ has said it will not exit its ultra-loose monetary policy until wage growth rises enough to keep inflation sustainable around 2%. Still, the markets have been burned before by the BoJ making unexpected moves and are on guard for the BoJ tightening policy, especially with the yen at very low levels.

The markets are keeping a close eye on the Jackson Hole symposium, with Fed Chair Powell and BoJ Governor Ueda both attending. Powell will deliver a key speech on Friday and Ueda will participate in a panel discussion on Saturday. If either one provides insights into future rate policy, it could mean some volatility from USD/JPY on Monday.

What does the Fed have planned? That depends on which Fed member is addressing the media. Philadelphia Fed President Patrick Harker said on Thursday that he didn’t see a need to raise rates further, absent any unexpectedly poor data, but added that the Fed wouldn’t be lowering rates anytime soon. However, Boston Fed President Susan Collins said that rate increases might still be necessary. The Fed is likely to pause at the September meeting, but what happens after that is unclear.

USD/JPY Daily Chart

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