Asia week ahead: Tokyo CPI and effects of easing geopolitical risks in focus
The desk believes that key inflation indicators out of Tokyo will impact JPY dynamics amid broader geopolitical stability. Per the full note from ING THINK, Tokyo’s consumer price index (CPI) is projected to rise to 1.7% year-on-year, despite government measures aimed at capping inflation. This inflation data is to be interpreted in light of easing geopolitical risks and the robust tech sector, which appears to be boosting overall market sentiment and demand in the region.
What the desk is arguing
The core thesis revolves around the anticipated rise in Tokyo's CPI and its implications for the Japanese Yen amidst a backdrop of geopolitical easing. According to ING THINK's analysis, inflation is expected to accelerate slightly due to increasing energy prices, which, alongside enduring demand pressures, could further support a bullish sentiment towards the JPY.
Supporting this view, the forecast indicates a modest uptick in inflation to 1.7%, which underscores nuanced shifts in price pressures relevant to the JPY's performance. The interplay of government price controls and external factors suggests the potential for increasing inflation may not be fully contained, paving the way for the Yen to react to these developments.
Where it sits in our coverage
Current consensus targets and forecasts for the JPY remain under review as this CPI print looms. Notably: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This suggests a range of 1.04 to 1.10 for the JPY, indicating divergence in expectations. The desk's outlook leans towards the upper end of the spectrum, emphasizing the potential for a stronger JPY in response to constructive inflation data and macroeconomic conditions.
How other firms see it
The predominant perspective among aligned firms suggests a cautious optimism regarding the JPY, anticipating that inflationary pressures may strengthen the currency. Conversely, firms like bofa hold a more bearish view, anticipating that any inflation data will remain contained and ultimately hinder significant JPY appreciation.
Key intersections to watch include the impact of the Bank of Japan's policy decisions and general trends in the USD/JPY pairing, which could reflect these dynamics directly.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Tokyo's CPI is expected to rise to 1.7%, indicating potential inflationary pressures.
- 02Easing geopolitical tensions could further bolster market sentiment towards the JPY.
- 03The desk's outlook for the JPY aligns with an expectation of tempered inflation, opposing more bearish forecasts from some sector actors.
- 04Inflation dynamics will provide crucial insights into the future trajectory of the JPY as it interacts with underlying economic conditions.
Market implications
Watch for the Tokyo CPI release as it could bolster short-term JPY strength against major counterparts, particularly if figures exceed expectations significantly. The interplay between inflation rates and market sentiment will shape positioning dynamics leading into the release.
Risks to this view
A rapid reversal in the geopolitical landscape or unanticipated central bank interventions could undermine the JPY's recovery. Additionally, if CPI growth fails to materialize as expected—particularly if it remains below critical thresholds—it could limit bullish sentiment.
Articles Asia week ahead: Tokyo CPI and effects of easing geopolitical risks in focus 07:02 Asia week ahead China Japan Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Tokyo inflation is the data highlight of the week. But the main event will be gauging how easing geopolitical tensions and a strong tech boom boost sentiment. Price pressures are likely to accelerate amid higher energy prices and firming demand-side pressures Deepali Bhargava , Lynn Song and Min Joo Kang Asia Research highlights of the week What the US-Iran peace deal means for Asia | articles | ING THINK Iran peace deal not enough to halt tightening in the Philippines and Indonesia | snaps | ING THINK Bank of Japan raises rates to 1%, and will end tapering next year | snaps | ING THINK Reserve Bank of Australia holds steady, and its tone remains even-handed | snaps | ING THINK Disappointing Chinese domestic data could add to pressure for fresh stimulus | articles | ING THINK Japan: Government measures keep inflation below 2% Tokyo’s June consumer price index is the key release next week.
We expect headline inflation to rise modestly to 1.7% year-on-year. The government’s price cap on gasoline and renewed utility subsidies should keep inflation below 2%. Yet, JPY weakness and second-round effects from higher energy prices should add to inflationary pressures on both goods and services prices.
China: A quiet week after the May data dump China updates its loan prime rates on Monday. Both 1-year and 5-year loan prime rates will remain unchanged at 3.00% and 3.50%, respectively. No major data releases are expected from China, following the recent data dump showing the domestic economy slowing further in May.
Taiwan: Export orders, IP to show continued strength amid tech boom Taiwan releases export orders data on Tuesday. We expect May export orders to continue their strong run, rising to 50.7% YoY. On Wednesday, we look for industrial production to remain little changed at 14.2% YoY.
Growth is likely to remain heavily imbalanced, tilted toward semiconductors and computers and electronic products. South Korea : easing political tensions, strong tech to boost confidence South Korea releases consumer and business sentiment data, likely showing an improvement amid easing geopolitical tensions and strong performance in the tech sector. Consumer sentiment could rise further toward historical highs, supported by equity market rallies and government cash-payout programs.
Business surveys should also advance, though with manufacturing showing a somewhat stronger gain than non-manufacturing sectors. The recent US–Iran peace deal is likely to improve confidence, with positive implications for household consumption and investment. Singapore: Price pressures expected to accelerate After a softer April print, Singapore’s headline CPI is expected to pick up in May.
This would mainly reflect elevated food prices and the lagged pass-through of prior fuel price increases. Core inflation should accelerate as well, highlighting robust underlying demand conditions amid strong economic growth. Key events in Asia next week Source: Refinitiv, ING "> Source: Refinitiv, ING Taiwan South Korea Japan China Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Deepali Bhargava Regional Head of Research, Asia-Pacific Deepali Bhargava joined ING in 2024 and is Head of Research and Chief Economist Asia-Pacific. She has over 19 years of work experience as a macro specialist covering rates, FX and equity markets… Lynn Song Chief Economist, Greater China Lynn Song joined ING in January 2024 as the Chief Economist for Greater China.
Prior to joining ING, he worked at China Construction Bank International, China Merchants Securities (HK), and Haitong… Min Joo Kang Senior Economist, South Korea and Japan Min Joo Kang is ING’s senior economist in Seoul covering the South Korean and Japanese economies. Prior to ING, Min Joo worked for Korea’s National Pension Service as Head of Investment… In this article Asia Research highlights of the week Japan: Government measures keep inflation below 2% China: A quiet week after the May data dump Taiwan: Export orders, IP to show continued strength amid tech boom South Korea : easing political tensions, strong tech to boost confidence Singapore: Price pressures expected to accelerate
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