January CPI data in Japan confirmed inflation remains above the Bank of Japan's 2.0% target. The Yen “survived” the release, but remains around very weak levels and in FX intervention region, economists at ING say.

Yen dodges a bullet

The Yen dodged a key risk event. January inflation came in higher than expected, with the headline rate declining from 2.6% to 2.2% and the core rate from 2.3% to 2.0%. This means that inflation remains above the Bank of Japan target, validating market expectations for a rate hike in the first half of the year.

The Yen rose after the release, but rather modestly. This probably raises the chances of FX intervention should US rates find more support and apply more external upward pressure on USD/JPY.

Our view remains bearish on USD/JPY for the remainder of the year, but that remains strictly tied to expectations of a decline in USD rates and the dollar, which should see the oversold Yen benefit even in the event of a delay in the BoJ rate hike until June.