Japan wholesale inflation keeps BOJ hike bets alive

That prospect matters for markets because it can keep the yen underpinned and reshape the relative appeal of Japanese assets versus US Treasuries and the dollar. The yen was still trading around 159.35 per dollar on Aug. 13, well above levels that typically imply weakness for the currency, even as its conventional technical indicators pointed to an oversold market, with the 14-day RSI at 27.3 and the price below the 50-day moving average.

The move comes as investors also reassess the global rate path. US 10-year Treasury yields are near 4.73%, while crude oil is hovering around $84.77 a barrel, a combination that keeps imported inflation risks alive for Japan even as softer US inflation has tempered expectations for aggressive Federal Reserve tightening. A weaker dollar, meanwhile, has helped Japanese equities, with the EWJ ETF rising to $97.79, and the Nikkei benefiting from demand for AI and semiconductor stocks.

For investors, the key issue is whether the BOJ turns July’s inflation backdrop into action at its September meeting. A hike would tighten financial conditions in Japan, potentially supporting the yen further and pressuring rate-sensitive trades, while a delay could keep the currency vulnerable and leave carry trades in place.

The next catalysts are US jobs data and any further BOJ communication. If inflation stays firm and policymakers keep sounding more willing to move, markets are likely to keep pushing up the odds of an early hike.