JAPAN DATA: CPI Slightly Firmer Than Forecast, But Food&Utility Inflation Eases
National CPI for February was slightly above market expectations. Headline CPI printed at 3.7%y/y (forecast was 3.5%, prior in Jan 4.0%), the ex fresh-food measure was 3.0%y/y against a 2.9% forecast and 3.2% prior. The ex fresh food, energy measure printed 2.6%y/y, in line with market forecasts but up from the 2.5% Jan outcome.
- In m/m terms, headline eased 0.1%, but the ex fresh food, energy measure was up 0.2%m/m. Goods prices fell 0.5%m/m, but service rose 0.1% (although these moves often get revised to flat).
- Drags came from a 0.5% m/m decline in food (with fresh food down 5.2%m/m). This will be welcomed by the authorities as it has been a source of concern and whether it could shift inflation expectations. Utilities also fell 4.2%m/m, as energy subsidies kicked back in.
- Most other categories saw either flat or modest m/m gains. Entertainment was up 0.4%m/m, while clothing and footwear rose 0.2%m/m (the first gain in two months).
- In y/y terms food and utilities inflation moderated but from high levels.
- The chart below plots the headline, ex fresh food and ex fresh food, energy inflation trends in y/y terms. Whilst we are off highs, all measures are comfortably above the BoJ's 2% inflation target.
- Note though, the measure of inflation which excludes all food and energy remained contain at 1.5% y/y in Feb. So today's data is unlikely to alarm the BOJ that it is falling behind the inflation curve.
Fig 1: Japan Inflation Trends - Y/Y, Off Recent Highs But Above 2%
Source: MNI - Market News/Bloomberg
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JGB TECHS: (H5) Fresh Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 142.73/144.48 - High Dec 9 / High Nov 11
- PRICE: 139.04 @ 16:01 GMT Feb 18
- SUP 1: 138.83 - Low Feb 18
- SUP 2: 138.87 - 3.000 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 138.52 - 1.0% 10-dma envelope
A clear downtrend in JGB futures firmed further on the strong GDP print, with the latest fresh cycle lows reinforcing the condition. Note too that MA studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The 140.00 psychological handle has been pierced and markets have shown through 139.38, a Fibonacci projection. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. Gains would be considered corrective.
US: Trump States Auto/Pharma Tariffs Likely 25% From Early April
At an earlier press conference, US President Trump stated, in the Q&A, says he'll probably announce the tariff rate on autos on April 2, says it will "probably" be 25%; says for pharma it will probably be 25% or even higher.
Bloomberg reported: “I probably will tell you that on April 2, but it’ll be in the neighborhood of 25%,” Trump told reporters at his Mar-a-Lago club when asked about his plan for auto tariffs. Asked about similar levies on pharmaceutical drugs and semiconductor chips, the president said: “It’ll be 25% and higher, and it’ll go very substantially higher over a course of a year.” Trump said he wanted to give companies “time to come in” before announcing new import taxes. " See this link.
JGBS: Futures Higher Overnight Despite A Heavy Session For US Tsys
In post-Tokyo trade, JGB futures closed higher, +8 compared to settlement levels, despite a heavy session for US tsys on Tuesday.
- The seemingly dovish implications of Friday's weak retail sales report faded, with Fed Gov Waller late Monday expressing less optimism than usual over the prospect of near-term rate cuts.
- US data was mixed, with Empire State manufacturing beating and NAHB sentiment missing.
- Cash US tsys bear-steepened after Monday's holiday: the 2-Yr yield up 4bps at 4.30%, 5-Yr up 7bps at 4.40%, 10-Yr up 7bps at 4.55%, and 30-Yr up 7bps at 4.77%.
- Treasury supply resumes on Wednesday with $16B 20Y Bond auction, while we also get January housing starts/permits data and the January FOMC meeting minutes (followed by an appearance by Fed VC Jefferson).
- “I probably will tell you that on April 2, but it’ll be in the neighbourhood of 25%,” Trump told reporters at his Mar-a-Lago club when asked about his plan for auto tariffs.” (ICYMI from Trump's earlier press conference)
- Today, the local calendar will see Trade Balance, Core machine Orders and Tokyo Condominiums for Sale data alongside BoJ Rinban Operations 1-10-year and 25-year+ JGBs. Note as well we hear from BoJ board member Takata speaking in Miyagi.
