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The “core-core” inflation rate in Japan, which excludes the volatile prices of both fresh food and energy, reached a seven-month high in September, climbing to 2.4% from a prior reading of 2.3%. This measure, closely monitored by the Bank of Japan (BOJ), has added more fuel to the ongoing debate around Japan’s monetary policy, which has remained ultra-loose despite rising prices. While other global central banks have decisively tightened policy to combat inflation, the BOJ has largely maintained its stance, citing the need for sustained wage growth and more stable inflation trends.
Analysts are assessing whether this uptick in inflation will add pressure on the BOJ to adjust its yield curve control (YCC) measures or potentially exit its negative interest rate policy. Traditionally, the BOJ has avoided reacting to short-term fluctuations in core-core inflation, prioritizing broader indicators such as overall consumer price index (CPI) trends and wage data. Yet, a consistent rise in core-core inflation hints at deeper structural changes in the pricing landscape, perhaps driven by supply chain adjustments, currency depreciation, or changing consumer behavior. The Japanese yen ($USDJPY) has already felt market pressure, weakening against the U.S. dollar in recent weeks, further amplifying imported inflation.
Market participants are keeping a close eye on the $NIKKEI 225 index as well, gauging how equities respond to the evolving inflation dynamics. Rising inflation often leads to upward revisions in long-term interest rate expectations, typically a negative factor for equity markets. However, specific sectors such as exporters or technology firms may benefit from yen depreciation, providing potential offsetting effects. Foreign investors, in particular, are recalibrating their positions, balancing the risks of prolonged BOJ dovishness against the prospect of higher inflation-induced returns.
In parallel, global capital markets, including cryptocurrency assets like $BTC, are observing Japan’s inflation trajectory as a potential bellwether for changes in liquidity. Higher inflation in a key global economy like Japan could signal a shift in investor sentiment, with ramifications for currency, bond, and risk asset markets alike. Whether Japan eventually makes a pivot toward tightening monetary policy remains a critical question not just for domestic stakeholders but for the global financial ecosystem. For now, the rise in core-core inflation reinforces the BOJ’s delicate balancing act, maintaining support for growth while dealing with the risk of more entrenched inflation ahead.
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