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Tokyo CPI Beats Expectations, BoJ Likely To Keep MonPol Settings Unchanged

JPY

USD/JPY struggled for a clear direction on the eve of the BoJ's monetary policy review, charting a Doji candlestick as a result, with both sides of the pair faring better than their G10 peers. The topside was capped by the release of weaker than expected U.S. durable goods and core PCE data.

  • U.S/Japan yield spreads tightened as Tsys turned bid in reaction to U.S. data. The spread on 2-Year yields narrowed 11.3bp, while 10-Year gap shrank 8.7bp.
  • Equity sentiment was fragile after a slew of disappointing earnings reports from U.S. tech names this week. The VIX index snapped a three-day losing streak and inched higher.
  • The consensus view is that the BoJ will keep its ultra-loose monetary policy settings unchanged today (see our preview here). The past week has seen Japan's 10-year swap rates pull back from cyclical highs.
  • USD/JPY 1-month risk reversal soared Thursday, bouncing off four-month lows printed the previous day. However, overnight option skews indicated the largest bias towards yen calls since early 2020.
  • PM Kishida unveiled a a Y29.1tn extra budget for stimulus measures. The total size of the package, together with local government and private-sector spending, will be Y71.6tn.
  • Tokyo core CPI inflation accelerated to +3.4% Y/Y this month from +2.8% prior, beating the +3.2% consensus forecast. The outcome is unlikely to challenge the BoJ's existing view that prices are driven by cost-push measures.
  • Spot USD/JPY last sits at Y146.25, little changed on the day. Bears look for losses past Oct 5 low of Y143.53, while bulls set their sights on Oct 21 high of Y151.95.

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