Indicators for Core CPI

What the desk is arguing

The desk posits that the Bank of Japan's emphasis on core CPI indicators will significantly influence market expectations regarding future monetary policy. Per the full note source, these indicators are designed to strip away the noise from temporary price fluctuations, providing a clearer view of Japan's underlying inflation dynamics.

The BoJ's methodology includes various measures, such as the trimmed mean and weighted median, which help to paint a more accurate picture of inflation trends. Recent data releases have shown persistent inflation pressures, which could prompt the BoJ to reconsider its accommodative stance if core indicators continue to rise.

Where it sits in our coverage

Our consensus target for USD/JPY is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which also anticipates a gradual shift in the BoJ's policy stance, while bofa remains more cautious, reflecting a divergence in outlook among firms.

How other firms see it

Firms like jpmorgan and citi are aligned in their expectation of rising inflation leading to a potential policy shift from the BoJ. Conversely, bofa and goldman express skepticism about the sustainability of inflationary pressures, suggesting a more dovish outlook.

Traders should also keep an eye on the USD/JPY pair, as its movements will likely reflect the BoJ's evolving stance on inflation and interest rates, particularly in light of the upcoming GDP data.

What the calendar says

With the GDP Growth Rate and Gross Domestic Product figures set to release on May 19, these events will be critical in assessing the economic backdrop against which the BoJ is operating. The data could provide further insights into the inflation trajectory and influence market sentiment leading into the BoJ's next policy meeting.