The market is broadly selling the yen on a higher-rates-for-longer trade globally in the hopes of a soft landing and improving global growth due to China stimulus.
The trade makes sense and USD/JPY is now threatening to break out of a consolidation pattern that’s unfolded in the past three weeks.
My one worry is that Japan CPI stays strong and that the BOJ is forced into an ugly abandonment of yield curve control. Right now, officials there are saying that high prices are transitory but that sounds awfully familiar.
I just can’t get past the idea that inflation can’t possibly be this low in Japan while the whole world is facing higher prices.
Japan CPI y/y