Japan's inflation rate and outlook for the dollar-yen exchange rate
✔️ National Core CPI for June
Signs of inflation According to data released by the Ministry of Internal Affairs and Communications, the national consumer price index (core CPI, excluding fresh food) in June rose 2.6% from the same month last year. A major factor is that energy prices have risen as much as 7.7% due to government subsidies for measures to mitigate drastic changes in electricity and gas prices being cut in half. In particular, city gas prices showed a 3.7% increase. Furthermore, lodging fees and household durable goods have also risen drastically, and it was confirmed that inflationary pressure is intensifying.
✔️ Inflation and the Bank of Japan's monetary policy
There is a possibility that rising prices in Japan will have a major impact on the Bank of Japan's monetary policy. Attention is being paid to whether the ultra-low interest rate policy up until now will be maintained, but since there is a high possibility that sudden monetary tightening will adversely affect economic growth, careful judgment is required.
✔️ Impact on the dollar to yen exchange rate [educational opinion 💡]
・Impact of Japan-US interest rate differences
While interest rates in America remain at a high level, interest rates in Japan remain at a low level. This Japan-US interest rate difference is a major factor promoting the appreciation of the dollar and the depreciation of the yen. While there is a possibility that the Fed will raise interest rates further as a countermeasure against inflation, the Bank of Japan is expected to continue its mitigation policy, so the dollar-yen exchange rate continues to move easily in the direction of depreciation of yen.
✔️ The fragility of the Japanese economy
The domestic economic situation remains fragile, and the impact of rising energy prices on consumption cannot be ignored. As economic growth is expected to slow, there is a growing risk that the value of yen will fall. This is a factor that encourages dollar buying and selling yen in the foreign exchange market.
✔️ Geopolitical risks
International geopolitical risks also have an impact on the dollar to yen exchange rate. In particular, when tension or trade friction occurs in the Asian region, dollars are bought as safe assets, and yen tends to be sold.
✔️ Summary
Overall, the rise in the national core CPI in June, the rise in energy prices, the Japan-US interest rate difference, the vulnerability of the Japanese economy, geopolitical risks, etc. are raising concerns about the dollar-yen exchange rate. If these factors continue, there is a high possibility that the trend of appreciation of the dollar and depreciation of the yen will continue. The Bank of Japan's monetary policy and how the government's economic measures progress will have a major impact on future market trends.
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