USD/JPY back under 140 – higher CPI a talking point

USD/JPY has finally dribbled a little lower on the session. Its back under 140.00. Which is not overly significant, for sure. It is a big round number and a bit of a reference point only.

Tea inflation

Inflation

Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.

Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term report was a hot one, for Japan. Its rekindled talk of a BOJ pivot, the first step of which would most likely be a relaxation of yield curve

Yield Curve

A yield curve is a line used to help determine interest rates of interest rates for a specific bond, differentiated by contract lengths. This is useful for contrasting maturity dates, for example 1 month, 1 year, etc. In particular, yield curves help underscore the relationship between interest rates or borrowing costs and the time to maturity. Some of the best examples of this include US Treasury Securities , which are among some of the most observed worldwide by traders. By determining the slope of yield curves, it is possible to plot or predict future interest rate changes. There are three types of yield curves that are primarily studied, classified as normal, inverted, or flat. Why are Yield Curves Important? Yield curves like other benchmarks help investors and analysts as certain more information about specific constructs affecting financial markets. For example, a normal or upward sloping curve points to economic expansion. Expectations of yields becoming higher in the future help attract funds in shorter-term securities with the hopes of purchasing longer-term bonds later, for a higher yield. The opposite is true in the case of an inverted or downward sloping curve, which traditionally points to an economic recession. If yields are expected to eventually be lower, investors opt to purchase longer-term bonds to help price in yields before further decreases occur. Subsequently, these are predictive of economic output and growth and are thus instrumental in financial analysis. These curves are also utilized primarily as a barometer for other forms of debt in a market, including bank lending rates, mortgage rates, and other benchmarks. 10-year and 30-year intervals. This information is published daily.

A yield curve is a line used to help determine interest rates of interest rates for a specific bond, differentiated by contract lengths. This is useful for contrasting maturity dates, for example 1 month, 1 year, etc. In particular, yield curves help underscore the relationship between interest rates or borrowing costs and the time to maturity. Some of the best examples of this include US Treasury Securities , which are among some of the most observed worldwide by traders. By determining the slope of yield curves, it is possible to plot or predict future interest rate changes. There are three types of yield curves that are primarily studied, classified as normal, inverted, or flat. Why are Yield Curves Important? Yield curves like other benchmarks help investors and analysts as certain more information about specific constructs affecting financial markets. For example, a normal or upward sloping curve points to economic expansion. Expectations of yields becoming higher in the future help attract funds in shorter-term securities with the hopes of purchasing longer-term bonds later, for a higher yield. The opposite is true in the case of an inverted or downward sloping curve, which traditionally points to an economic recession. If yields are expected to eventually be lower, investors opt to purchase longer-term bonds to help price in yields before further decreases occur. Subsequently, these are predictive of economic output and growth and are thus instrumental in financial analysis. These curves are also utilized primarily as a barometer for other forms of debt in a market, including bank lending rates, mortgage rates, and other benchmarks. 10-year and 30-year intervals. This information is published daily.
Read this Term check. Countering this, of course, is the continued insistence from Bank of Japan Governor Kuroda that the high (again, for Japan) levels of inflation are transitory and he won’t be responding with policy change.

Goldman Sachs Japan inflation chart:

Bank of Japan Governor Kuroda says again Japan’s core CPI likely to slow from next year

More from BOJ Gov Kuroda: Japan has yet to see inflation hit 2% in stable sustained manner

BOJ Gov Kuroda concedes CPI may rise more in coming months, but likely then to slow

BOJ Kuroda on the yen: Recent sharp, one-sided yen declines are absolutely undesirable

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