Mixed Performance by the Yen Ahead of Inflation and the BoJ’s Meeting

Group 1: Japanese Economic Indicators - Japan's balance of trade for August showed a deficit of ¥243 billion, significantly better than the expected ¥514 billion, indicating a potential easing of the impact from new American tariffs [1] - Exports declined by only 0.1% in August, while imports fell by 5.2%, suggesting a stabilization in trade dynamics [1] Group 2: Monetary Policy Outlook - The Federal Reserve is expected to implement three rate cuts by the end of the year, while the Bank of Japan (BoJ) is anticipated to hike rates, with a single hike likely at the meeting on 30 October [2] - Current market sentiment suggests a potential increase in the BoJ's key policy rate to 0.75%, creating a significant interest rate differential with the Fed [2] Group 3: Inflation Trends - Japanese inflation appears to have peaked in January 2025, with a gradual downtrend observed since then, although the pace of decline may not be sufficient for the BoJ to abandon its ultra-easy policy [3] - Upcoming inflation data is expected to show a drop to 2.8%, influenced by government efforts to moderate food prices, particularly rice [4] Group 4: Currency Market Reactions - The USDJPY reached its lowest level since late July, driven by better-than-expected Japanese trade data and expectations of a Fed rate cut [6] - Despite concerns about the Japanese economy, particularly with declining exports, market sentiment has shifted towards the American economy and job market [6]