Inflation in Japan breaches 2 percent target in April

Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Daniel Richards - MENA Economist
Published Date: 20 May 2022


  • CPI in Japan rose to 2.5% y/y in April from 1.2% in March, the first time it has exceeded the central bank’s target since 2014. Core CPI (excluding fresh food) rose 2.1% y/y, the fastest rate since 2008. Higher energy and food prices contributed significantly to inflation on a y/y basis. The BoJ is unlikely to adjust its policy in the near term as it is looking for 2% inflation to be maintained over a longer period, and believes the current supply driven inflation won’t be sustained.
  • The PBOC cut the five-year loan prime rate by 15bp to 4.45%, more than the market had expected, and the biggest cut since 2019.  The one-year prime rate was left unchanged at 3.7% although analysts had expected a cut here as well. The five-year rate is a reference rate for mortgages and indicates increased support for the real estate sector.   The PBOC had reduced the rate charged on new mortgages on Sunday, also in a bid to boost demand for new home loans.
  • In the US, economic data overnight came in weaker than expected. Initial jobless claims rose to 218k in the week to 14 May, more than analysts had expected and the highest reading since January. Continuing claims for the week to 7 May declined. 
  • Existing home sales also came in below forecasts, down -2.4% m/m with the March reading revised lower to -3.0% m/m.  Higher mortgage rates in the US, currently at 5.5% for 30y mortgages, low inventory and high home prices have all been cited as reasons for the slowing in transactions.
  • The Central Bank of Egypt hiked its benchmark interest rates by 200bps yesterday, taking the overnight deposit rate to 11.25%. This was a bigger move than the consensus expectation, but smaller than our prediction as we had anticipated a more aggressive move from the CBE following the 13.1% y/y inflation print for April. The bank cited the inflationary pressures emanating from the war in Ukraine (to which Egypt is particularly exposed given around 80% of the country’s wheat imports come from the Black Sea region) and the ongoing disruption to supply chains from lockdowns in China, and the statement also acknowledged the threat to economic growth from these. CBE Governor Tarek Amer spoke at the Arab Banking Conference in Cairo yesterday where he stressed that the bank would not hesitate to take any necessary steps to curb inflation, although the MPC stated that ‘the elevated annual inflation rate will be temporarily tolerated relative to the CBE’s pre-announced target of 7 percent (±2 percentage points) on average in 2022 Q4, before declining thereafter’.
  • The UAE’s and Turkey’s export credit agencies have signed an MoU to work together to facilitate trade and improve access to credit insurance and project funding.

Today’s Economic Data and Events

10:00 UK retail sales (Apr) forecast -0.3% m/m and -7.0% y/y

Fixed Income

  • Treasuries rallied for much of the day as markets remained in a risk-off mode thought the gains were moderated by the end of the trading day. Yields on the 2yr UST fell from an intraday high of around 2.68% to as low as 2.57% before settling at 2.6073%, down 6bps. In the 10yr the moves were wider with yields falling from around 2.92% to 2.77% before closing at 2.8370%, down 5bps.
  • Esther George, president of the Kansas City Fed, said that the Fed wouldn’t be deterred by the volatility in financial markets from its efforts to rein back inflation via higher rates.
  • Bond markets elsewhere gained on the back of risk aversion. Yields on the 10yr bund dropped 8bps to 0.945% while the 10yr gilt yield was flat at around 1.86%. In emerging markets, South African bonds rallied with yields down by 11bps even as the South African Reserve Bank raised rates by 50bps. Egypt’s central bank also hiked rates, increasing the deposit rate by 200bps to 11.25%.   


  • Currency markets moved against the dollar again overnight, the fourth day of losses in the last five trading days. The broad DXY index fell more than 1%, helped lower by a 1.2% gain in EURUSD to 1.0588 and a 1% bump in GBPUSD to 1.2467. USDJPY also moved in favour of the yen, down by 0.3% to 127.79.
  • In commodity currencies, USDCAD dropped in favour of the loonie, down by 0.5% to 1.2825 while AUDUSD and NZDUSD added more than 1.3% each to 0.7049 and 0.6381 respectively.


  • US equities sold off again yesterday, although compared to the routs seen in recent sessions the losses were minimal. The Dow Jones was the biggest loser, dropping -0.8%, while the NASDAQ lost -0.3% and the S&P 500 -0.6%.
  • There had been greater losses earlier in the day in Europe, where the UK’s FTSE 100 in particular came under strain as recession fears mounted. The index has performed comparatively well ytd, but it lost -1.8% yesterday with losses across all sectors. Germany’s DAX dropped -0.9% and France’s CAC -1.3%.
  • Locally, the ADX, the DFM and the Tadawul closed down -0.6%, -1.4% and -2.2% respectively.  


  • Oil prices managed to shrug off the volatility in the rest of financial markets with a 2.7% gain in Brent futures to USD 112.04/b and a 2.4% jump in WTI to USD 112.21/b. There was little in terms of fundamental catalysts to push markets in either direction, however.    

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