The holiday shutters most markets today. Several Asian markets were open, and equities were narrowly mixed, with Japan and China posting small gains. Most of the other local markets, including Australia, Korea and Taiwan slipped. 

The US dollar is trading with a firmer bias, but mostly, as one would expect, within yesterday’s ranges. Three observations are worth sharing. 

First, within the modest movement today, sterling is the weakest of the major currencies, as it has been for the week. The combination of the Brexit fears, concern that the Tory Party itself is being torn asunder by very referendum that the Prime Minister had hoped would unite the party, and the unwinding of the recent record large jump in speculative long sterling positions in the futures market has kept the pound under the cosh. Today is thus far the first session this week that sterling has not traded below the previous day’s lows. 

Second, the dollar has risen to its best levels against the Japanese yen since the FOMC meeting and is trying to build a foothold above JPY113. Each session this week the greenback has recorded a higher high and a higher low. Japan’s CPI data disappointed and that disappointment keeps open the possibility that the BOJ takes additional measures as early as next month.  

The headline February CPI came in a 0.3% as expected. The targeted rate, which excludes fresh food, remained stuck at zero for the second consecutive month. When both fresh food and energy are excluded, prices rose 0.8% year-over-year, which for the sake of comparison, is the same level as reported by the eurozone for the same period. Tokyo CPI is for March, and here the disappointment was not just the lack of upside progress, but excluding fresh food and energy, deflation deepened to -0.3% from -0.1%. The Bloomberg consensus forecast was for a 0.2% decline.

Weak growth (the Japanese economy contracted in Q4 15), practically non-existent wage growth, and the yen’s strength, which offsets the increase of some import prices, including oil, makes is difficult to see how the 2% inflation target will be approached anytime soon. Hence the pressure on the BOJ to do more. For its part, the government may turn to 1) front loading a supplemental budget for the new fiscal year that begins next month, and 2) delay the sales tax increase planned for April 2017. The delay of the sales tax may be announced at the late-May G7 meeting hosted in Japan.  A delay in the tax would be consistent G20 call last month.