Japan’s CPI out at 23:30 gmt on 17.05.2018

The consumer price index for Japan in March 2018 was 101.0 (2015=100), up 1.1% over the year before seasonal adjustment, and down 0.4% from the previous month on a seasonally adjusted basis. This slip didn’t go unnoticed, as a matter of fact where it should have gone better from Spring, the opposite happened. And this month same is expected. Another slowdown of 0.4% on the MoM is in the pipe, bringing the YoY down to 0.7% , miles away from BOJ’s 2% target, for which they abandoned a preset schedule over the last BOJ Mon Pol meeting.
Even their core core is expected to slide further from 0.5 to a miserable 0.4% YoY.

Assuming the expectations are correct, the market should and will mostly anticipate a continued push on the pedal on the YCC , maybe even a bit harder as higher US rates have started to attract just that bit of upwards pressure on Japanese yields too.
What are the immediate tools, without expecting an urgency meeting and all the psycho that would go paired with it? Well tonight we also have BOJ’s announcement of their planned JGB buying in the 1-10 years window around 00:10 gmt. Since they have been running behind schedule in the past 12 months, they can up their amounts to show the market they mean business keeping those rates pinned to zero. Besides, they could also increase their ETF/REIT buying in the open market, which would underpin if not drive prices higher. Result? Well USDJPY would go from bid, to bidder to biddest as they would open the spread between US and Japanese yields even wider and at the same time have a lifting effect on Japanese stock and real estate markets. Some of it may be in the price the past few days in the run up to these CPI data but if BOJ de facto ups their bond buying , I expect the 110.85 and 111 to get toasted and take us to the levels we discussed on Ryan’s post earlier today.

Now the other side? A positive surprise… There’s a slim chance, very slim knowing the Japanese conservative behaviour that the higher wages announced last month have had an immediate impact on consumer behaviour and started to push goods and service prices up but that seems way to early for me. Anyways, in the event of the unexpected, we could see a retracement back down to mid/low 110 as I really can’t see a beat compared to previous months, at best a status quo. And then we still will have to wait what BOJ decides to bake of it a good half hour later on the JGB.

I’m small long USDJPY, if CPI disappoints will add, if status quo I will wait for the reaction half hour later, if in the unlikely case we’d get a beat(get out of here in Japan ??), I will sell JPY crosses(eur, chf, aud for instance)

Stay safe, happy hunting and Ganbatte Kudasai

Here’s what happened last month
Japanese Ministry of Finance data

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