The Japanese yen ended the day very mixed across the majors, as the low-yielding currency fell against the US dollar and the British pound but rallied versus the euro and high-yielding Aussie and Kiwi dollars. Indeed, Japanese fundamentals have had little bearing on price action in the yen pairs for quite some time, but it is worth noting that Japanese headline inflation jumped to an annual rate of 1.2 percent in March, the highest reading in a decade.
Most of the pick up can be attributed to the recent rallies in oil and other commodity inputs, as the index excluding the costs of fresh food and energy brings the metric down to a tepid 0.1 percent pace. Inflation driven by rising costs will discourage spending by firms and consumers alike and leaves the Bank of Japan in a precarious position. While the policy board likely remains in favor of rate normalization, substantial downside risks to exports and faltering consumption will force the Bank to leave rates unchanged and if anything, will lead them to consider cutting rates. Nevertheless, with interest rates already at an ultra-low 0.50 percent, the stimulating potential of a 25bp rate cut would be extremely small and leaves the odds in favor of steady rates for much of this year.