📝Favour Selling USD/JPY Rallies to 150.0: Rabobank

The CPI ex-fresh food and energy inflation index ticked up a touch to 2.6% y/y. In its policy statement this week, the BoJ noted that while the pass-through effects of cost increases led by past rises in import prices are set to wane, underlying CPI inflation is expected to increase gradually. This view is based around the assumption that labour shortages will continue to drive the virtuous cycle between wages and prices in addition to long-term inflation expectations.

A significant part of Japan’s elevated inflation rate stems from cost-push pressures, which have been accentuated in recent years by the weakness of the exchange rate. Last April, the BoJ published staff estimates of underlying CPI inflation which attempt to strip out cost-push pressures.

We maintain a forecast of USD/JPY145 by year end and see downside risk to this view. Consequently, we continue to favour selling rallies to USD/JPY150.00. - Rabobank