Japan vs. U.S.’s Inflation Data Lays Ground for BoJ’s Further Tightening

A robust Japan’s Producer Price Index (PPI) paves the way for potential further tightening of policy by the Bank of Japan (BoJ). This scenario, coupled with geopolitical uncertainties and apprehensions regarding the tariff strategies of U.S. President-elect Donald Trump, supports the safe-haven status of the Japanese yen (JPYUSD).

According to a preliminary report from the Bank of Japan, the PPI for Japan posted an increase of 0.3% in November, reflecting a YoY rise of 3.7%. That followed last Friday's wage growth statistics, which indicated that base pay in October rose by 2.7% YoY — something unheard of for such a country as Japan, marking the most significant growth since November 1992 and providing the BoJ with additional justification for raising interest rates.

Furthermore, BoJ Governor Kazuo Ueda indicated that the timing for the next rate hike is drawing near, although some reports have suggested that the BoJ may opt to postpone a rate increase for the time being. Meanwhile, according to Bloomberg, overnight JPYUSD indexed swaps priced in a 19% likelihood of the Fed rate hike in December, showing a significant drop from the 60% probability observed at the start of last week, due to the fresh outgoing inflation data in the U.S. The yen has corrected to 152.18 per USD this week, down from 150 last Friday, and is currently trading around 152.