Fiscal And Monetary Policy Continue To Present Yen Headwinds

• The combination of continued easy policy including yield curve control, with a widening trade deficit and fiscal loosening adding fuel to the fire, continues to put downside pressure on the Yen. Absent a significant official policy shift (short-term FX interventions don't count), either from Japanese officials or the long-awaited but still very much elusive Fed pivot, there is little reason to expect USDJPY to stabilize.
• Japanese core CPI came in at 3% Y/Y in data out earlier today (an 8-yr high but in line with survey), and the BOJ will raise its inflation forecasts at its meeting next week. But as our Policy Team reports, it will be some time before price pressures trigger any change in the policy outlook given they still see inflation as transitory:
• "Bank officials don’t have sufficient evidence to change their baseline view that the year-on-year rise in consumer price index will slow and fall below 2% in fiscal 2023 and the price target will not be achieved for the projection period to March 2025. However, they are vigilant against the risk that Japan’s CPI may not weaken as much as they expect and will stay at high levels, depending on the global economic outlook, pass-through of high costs and wage hikes."

Source: BBG, MNI