Early Morning Call: USD, JPY little changed despite Japan inflation hitting 42-year high

Japan CPI soars

Japan's consumer inflation is now at a 42-year high. Consumer price index (CPI) rose 4.3% in January year-on-year (YoY), accelerating from a 4% rise in December to a level not seen since December 1981. Core CPI increased by 4.2% in January YoY, in line with expectations.

Yet, incoming Bank of Japan (BoJ) governor Kazuo Ueda, named earlier this month, expressed his intention to maintain the central bank's ultra-low interest rates for the time being to support the country's fragile economy.

Speaking to Japan's lower house, Ueda said the recent rise in inflation is driven largely by rising raw material import costs, rather than strong demand: "It's standard practice to act preemptively to demand-driven inflation, but not respond immediately to supply-driven inflation".

Other major economic news

After recent signs of improvement in the UK economy, GfK's headline consumer confidence index rose by more than expected to a 10-month high in February. The index increased to -38 in February, from -45 the previous month. This seven-point increase is the biggest month-on-month improvement in almost two years. Economists expected a rise to -43. But there is still a long way to go to the -7 recorded in February 2020, just before the Coronavirus pandemic hit.

And the cost-of-living crisis remains a challenge for UK consumers. The survey shows that nearly half of consumers are now digging into their savings and one in 10 are taking on debt to cover essential costs.

In Germany, the second estimate of GDP shows a contraction of 0.4% in the fourth quarter (Q4) quarter-on-quarter (QoQ), compared to expectations of -0.2%. Gfk consumer confidence improved to -30.5 in March.

In the US, the dollar could react to the core PCE price index due at 1.30pm, which is expected to rise 0.4% in January month-on-month (MoM), and 4.3% YoY. The greenback trades at a seven-week high against the euro.

Earnings

IAG posted profit for 2022. Profit after tax came in at €431 million, following a loss of €2.93 billion a year ago. The group also announced yesterday evening after European markets closed that it had agreed to pay €400m for the remaining 80% of Air Europa it did not already own.

Commodities

Oil prices are on track to post a second straight week of declines.

According to EIA data, US crude oil inventories rose for the ninth week in a row to their highest level since May 2021. Crude oil inventories rose by 7.6 million barrels last week. This was partly due to ongoing refinery maintenance.

Refinery utilisation rates fell by 0.6 percentage point to 85.9% of total capacity.

Gasoline stocks fell by 1.9 million barrels, and distillate inventories rose by 2.7 million barrels,

Tonight, oil analysts await the Baker Hughes rig count. Last Friday, the total rig count fell by one to 760. The number of oil rigs in operation declined by two to 607.