Both CPI and Core CPI raised 4% in December.
With the Monday holiday, this week started on Tuesday in Japan and with inflation numbers. According to the Statistics Bureau of Japan, both CPI and Core CPI in Tokyo rose by 4% in December, up from 3.7% and 3.6%, respectively. While these data show inflation increasing rapidly in Japan, we have no sıgnal from the Bank of Japan that they may change the central bank's policies.
On the other hand, along with inflation numbers, we also had Japan's Household Spending data. In the other part of Tuesday's Japanese Statistics Bureau report, we can see that in November, Japanese spending contracted by -0.9%, decreasing the annual scale down to -1.2%, while one month before that, on both Monthly and Annual scales, spending rose by 1.1% and 1.2%, respectively.
House Hold spending confirmed the negative effect of inflation on consumers' behavior and made them spend less, while prices increased by 0.2% monthly and 4% annually. However, BoJ's recent bond buying can still be the prelude to a pivot toward a more hawkish fiscal policy. However, since a sudden decision to buy bonds was made last week, and inflation data came out this week, the recent gains that the Yen had could be because of last week's news, while this week, the Yen again reversed to a weaker position against the US dollar and lost almost 1% so far.
While the energy market is still uncertain, and most analysts are still not convinced that energy prices will drop significantly in the coming year and even can rise or hold the current high levels, Japan's economic growth, which depends directly on energy prices, has not such a bright outlook, and recession concerns for the world's third-biggest economy are raising.
We should remember that BOJ Governor Haruhiko Kuroda is due to retire in April, and his successor may decide to unwind the BOJ's ultra-easy policy. Moreover, if we can see any changes in Japan's monetary policy within 2023, Yen's outlook can be changed totally.
Yen started the New Year with a gain. The USDJPY pair tested under the 129.50 level before rising back to 134.77. However, most of the gains of the Japanese Yen this year were due to USD weakness, and later, with the strengthening of the dollar again, USDJPY slowly changed its recently tested downtrend. If the USD/JPY pair declines, it may find support at 130.4 and 129.50, and if the pair climbs, it may find resistance at 137.50.
