FX Daily Strategist: Europe

Japan’s CPI report hints at path from deflation

Japan’s June core CPI rose 0.4% y/y, the first positive reading in 14 months. Our Japanese economists highlight that the rise partly reflected the impact of a weaker currency. In conjunction with the recent Upper House election results a positive read on inflation gives another boost to Prime Minister Abe, although we would be cautious about drawing strong implications for FX. USDJPY has been under pressure from lower US yields, and while the move lower will ultimately represent a buying opportunity in our view, the near-term risk of an unwind in JPY shorts (the largest position in the G10 according to our Positioning Analysis indicator) persists for now.

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BNP Paribas

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