There was a surprisingly large drop in the Tokyo inflation data with the headline YoY rate falling from 2.4% in December to 1.6% in January. The core-core rate fell from 3.5% to 3.1%. The declines were 0.4ppt and 0.3ppt more than expected and could raise doubts over the BoJ’s potential plans to hike the key policy rate in April. Still, the base effects should be more supportive for inflation remaining higher over the coming months given the gas and electricity subsidies were introduced in Q1 2023 which helped depress inflation.

Given our near-term bias for the US Dollar to strengthen and given the larger-than-expected drop in the inflation data, we may in turn see some increased appetite for Yen-funded carry positions that help fuel a further rise in USD/JPY. 

April seems too far ahead to discourage Yen selling although the threat of intervention will slowly increase if spot continues to drift higher to the 150.00 level.