Japan’s Higher-Than-Expected Core Inflation Raises Rate Hike Concerns, Weighs on Crypto Market

Japan’s Core Inflation Exceeds Expectations, Renewing Rate Hike Speculation and Yen Volatility

Japan’s inflation remains persistently high, with its headline figure still nearly 100 basis points above U.S. levels.

Hopes of easing yen concerns were short-lived as fresh data reignited fears of prolonged inflationary pressures.

Official data released Friday showed Japan’s core inflation, which excludes fresh food prices, rose 3% year-over-year in February. While slightly lower than January’s 3.2%, it still outpaced market forecasts of 2.9%. Meanwhile, the headline consumer price index (CPI) moderated to 3.7% from 4%. Despite the decline, both figures remain well above the Bank of Japan’s (BOJ) 2% target, reinforcing BOJ Governor Haruhiko Kuroda’s assertion that Japan has overcome decades of deflation.

Persistent inflation, coupled with rising wages from the annual shunto negotiations, has intensified speculation about a BOJ rate hike. A potential yen rally—known for pressuring risk assets such as cryptocurrencies—could be on the horizon.

As of writing, the dollar-yen (USD/JPY) pair stood at 149.22, having rebounded nearly 300 pips since March 11, signaling renewed yen weakness, according to TradingView data.

Despite this, rising Japanese bond yields suggest the potential for a stronger yen. The narrowing U.S.-Japan 10-year bond yield spread has provided upward momentum for the yen, with Japan’s 10-year bond yield holding above 1.5% and the 30-year yield exceeding 2.5%, both at their highest levels in decades.

Should the yen strengthen further, risk aversion could resurface, echoing market conditions seen in August last year.