Japan's Inflation Slows to 2.3%, Yen Rebounds

Japanese consumer inflation slowed in December for the second consecutive month, reaching 2.3%. This marked a decrease from the previous month's 2.5% figure, aligning with market expectations. 

The year-long cooling trend has seen inflation fall significantly from its 4.2% peak in January 2023. Despite inflation remaining above the Bank of Japan's (BoJ) 2% target, the central bank is likely to maintain its monetary easing measures during its upcoming policy decision next week. 

The BoJ's commitment to its ultra-loose policy contrasts with other major central banks that have implemented interest rate hikes, contributing to downward pressure on the yen.

Speculation surrounding a potential shift away from negative interest rates by the BoJ had been circulating. However, the recent devastating earthquake in central Japan has made such a policy move even less likely, according to analysts.

Meanwhile, the yen has gradually recovered from its late October low of nearly 152 yen against the US dollar due to growing speculation of potential policy adjustments by the BoJ.

The interest-rate gap between Japan and the US has impacted the yen's depreciation against the greenback. The US Federal Reserve has paused its rate hikes after an extended period of increases and has hinted at the possibility of rate cuts next year, which could narrow the gap and affect the yen's trajectory.