Higher-than-expected core inflation in Japan has sparked speculation about possible interest rate hikes, putting cryptocurrency at risk
Japan's inflation rate remains nearly 100 basis points higher than the U.S. inflation rate.
James Van Straten | Edited by Omkar Godbole , Mar 21, 2025 11:12 AM UTC
What you need to consider:
- Japan's headline inflation remains nearly 100 basis points higher than that of the United States, a deviation not seen since 2015, indicating continued pressure on domestic prices.
- Rising inflation is fueling speculation about a potential rate hike by the Bank of Japan, which could have a more serious impact on global markets and risky assets such as cryptocurrencies.
Just when it seemed that yen concerns might subside, Japan reported a rise in core inflation.
Data released Friday morning showed Japan's core inflation, which excludes fresh food prices, rose 3% year-on-year in February, down from 3.2% in January but above the consensus forecast of 2.9%. The core consumer price index fell to 3.7% from 4%.
Overall, both indexes remained well above the BOJ’s 2% inflation target, underscoring central bank Governor Haruhiko Kuroda’s claim that decades of deflation have been overcome. Notably, Japan’s headline inflation rate has been higher than the U.S. since November, and is currently nearly 100 basis points (bps) higher.
Persistent inflation, as well as rising wages as a result of the Shunto wage negotiations, have increased the demand for a rate hike from the BOJ. In other words, the potential rise of the yen, which is known for destabilizing risk assets including cryptocurrencies, is once again becoming a hot topic.
At the time of writing, the dollar-yen (USD/JPY) pair was trading at 149.22, up nearly 300 pips, according to TradingView data, indicating a resumption of weakness in the yen since March 11.
However, the narrowing or narrowing spread between the U.S. and Japanese 10-year yields is supporting the yen’s strength. Japanese bond yields are rising across the curve, providing bullish signals for the yen. At the time of writing, the Japanese 10-year yield remains above 1.5%, while the 30-year yield is above 2.5%, both at multi-decade highs.
A renewed strengthening of the yen could trigger risk aversion similar to what was seen in August last year.
