Bank of Japan Prepares to Move Despite Stable Inflation Rate
The Japanese Yen's value is closely tied to its economy and monetary policy. Recently, the USD/JPY pair has been trading near 159.00, a level that's roughly five Yen below its pre-intervention high.
Imports in July rose 27.8% YoY, outpacing exports at 23.2%. This significant increase in imports is due to Japan's reliance on foreign energy, which has led to a structural bid for foreign currency every month the economy stays open.
The Bank of Japan is preparing to move, but not because of inflation. July core inflation consensus stands at 1.8% YoY, still beneath the 2% target. Producer prices rose 7.2% YoY in July, while consumer inflation ran near 1.7%, a gap of more than five percentage points between what firms pay and what the index records.
The national Consumer Price Index (CPI) release at 23:30 GMT carries core excluding fresh food at a 1.8% consensus from 1.6%. A 1.8% core would be a six-month high but still sit beneath target, which is the whole problem with reading Friday as a policy trigger.
Given these factors, it's clear that the intervention has been fully unwound, and the market has tested this proposition, arriving at the answer the arithmetic implied.