Inflation endorses hawkish sentiment – ING

The Japanese Yen (JPY) has had a stellar week, ING’s FX analysts Francesco Pesole notes.

JPY remains broadly attractive in the crosses

“Along with the combined effect of softer USD and safe-haven flows into the JPY, Japanese inflation data overnight reinforced growing hawkish sentiment on the Bank of Japan. Headline CPI accelerated to 4.0% as expected in January and core was slightly hotter than expected at 3.2%.”

“The OIS pricing for December is 37bp of BoJ hikes, but only 15bp by June. We expect the next 25bp move already in May followed by another in October.”

“We are a bit reluctant to call for another major leg lower in USD/JPY after the break below 150.0, largely on the back of our rates team bearish call on Treasuries and our expectations for a stronger dollar. However, the JPY remains broadly attractive in the crosses, and we believe there is a more convincing bearish story for EUR/JPY.”