FX Weekly Overview (Brazil Issue)
Dollar to reflect US economic data, Central Bank minutes, inflation in Brazil, and the Middle East
Leonel Mattos
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Bank of Japan Faces Rate Dilemma as Inflation Persists and Elections Loom
Bank of Japan Faces Rate Dilemma as Inflation Persists and Elections Loom
David Scutt, FOREX.com APAC Market Analyst, outlines how sticky inflation and looming elections are shaking confidence in Japan’s policy outlook.
Key Takeaways
- Core-core CPI in Japan rose to 3.4%, showing persistent inflation
- Political risks ahead of upper house elections are unsettling markets
- Japan’s bond yields are rising on concerns over fiscal expansion
Inflation Persistence Meets Rising Political Risk
Japan’s core inflation eased slightly in June to 3.3%, driven by gasoline subsidies, but the core-core CPI, favoured by the BOJ as it excludes fresh food and energy, rose to 3.4%, signaling sustained cost pressures in services.
This comes at a politically sensitive time for Prime Minister Ishiba, with cost-of-living concerns dominating the lead-up to Sunday’s upper house election. A poor showing for the ruling coalition could prompt fiscal expansion through tax cuts and increased welfare spending, heightening investor concerns about Japan’s fiscal trajectory. Bond yields have already moved higher, particularly at the long end of the curve, as markets anticipate the outcome. Swaps markets reflect a two-in-three chance of a BOJ rate hike by year-end, though the political fallout may alter the Bank’s path forward.
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---- Written by Frederic Guetin, StoneX TV Producer
---- Expert: David Scutt, FOREX.com APAC Market Analyst
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