Japan Inflation is "Sticky" — Mixed Asian Stocks, Yen and Bonds Indicate "Waiting for Powell" Tension: Analyzing the 'Quiet Heat' in Asian Markets Following Japan's CPI

Intro: Asian Markets "Mixed," Eyes on Japan CPI and Powell

On the morning of the 23rd (Japan time), the Asian markets started with a lack of direction. This is due to Japan's latest inflation statistics maintaining a level above the Bank of Japan's target, and a cautious mood spreading ahead of Chairman Powell's speech at the Jackson Hole meeting in the U.S. Seeking Alpha summarized it as "Asian markets mixed, digesting Japan's inflation, eyes on Powell." Seeking Alpha

Japan's Inflation: Slowing "Yet" Core Remains Strong

The nationwide CPI for July was +3.1% year-on-year. The core (excluding fresh food) was also +3.1%, slightly exceeding market expectations (+3.0%), and the core-core (excluding fresh food and energy) remained high at +3.4%. The recent slowdown is mainly due to base effects and the fading impact of energy subsidies, while underlying price pressures remain sticky. ReutersTrading Economics

These figures can also be confirmed in official statistics (Statistics Bureau of Japan). The government announcement headline clearly states "July 2025, +3.1% year-on-year." Statistics Bureau of Japan

Market Initial Reaction: Limited Forex Response, Selective Stocks

The forex (USD/JPY) showed limited reaction post-CPI announcement. With significant uncertainty over U.S. monetary policy, a one-directional trend for the yen is hard to establish. Investing.com notes, "The yen's reaction is muted, but the core's stickiness is a factor preventing further yen depreciation due to expectations of a BOJ rate hike within the year." Investing.com

Stocks are seeing selective buying in domestic demand defensives and wage-benefit stocks, while caution remains in some external demand sectors. Considering that Nikkei/Topix tested record highs in the summer, a tug-of-war between short-term profit-taking pressure and dip-buying is likely to continue. Reports of record highs also underpin the "strength of the market sentiment." MarketScreenerReutersNasdaq

BOJ's Next Move: Normalization "Slow but Sure"

The stickiness of the CPI supports the BOJ's gradual normalization (additional policy rate hikes and more flexible long-term interest rate operations). Reuters reported that about two-thirds of economists expect an "additional rate hike within the year (Q4)." However, this is contingent on assessing growth and wage trends, and a rush is likely to be avoided. Reuters

Jackson Hole: Reading Powell's "Between the Lines"

The market's primary focus is on the speech by Federal Reserve Chair Powell (August 22 local time). Several major media outlets have outlined scenarios such as "possibly hinting at a rate cut as early as September," while also mentioning price pressures from tariffs and supply constraints due to immigration restrictions, maintaining a cautious stance. In fact, the speech summary and live blogs mention the hint of rate cuts while addressing price risks and political headwinds (pressure from the White House). The Guardian+1Argus Media

The FRB's official speech page has also been released, with references to the policy framework review. The market is in a mood to interpret every word and nuance (such as "restrictive" and "data-dependent"). Federal Reserve

Asian Market Map: Divergence in Strength

Post-CPI, Japan is polarized between sectors. In contrast, China and Hong Kong are weighed down by a heavy economic sentiment, while South Korea and Australia are more susceptible to swings in U.S. interest rate expectations. Regional indices are generally in a narrow range, depicting a "nervous consolidation" awaiting U.S. events. This "mixed" atmosphere aligns with the initial summary by Seeking Alpha. Seeking Alpha

SNS Reactions: Visualizing Investors' "Voices"

• On X (formerly Twitter), Axios's account succinctly organized "market reaction scenarios to Powell's speech." A dovish tone would lead to rising stocks, falling interest rates, and a weaker dollar, while a hawkish tone would reverse these, sharing a classic reaction map that spread widely. X (formerly Twitter)

• On Reddit r/Economics, a discussion thread was active on "tariffs pushing up inflation and delaying the start of rate cuts." Concerns about the impact of political noise on the independence of monetary policy were also prominent. Reddit

• In Reddit r/StockMarket, a thread summarizing the key points of the speech was created, with short-term trade views like "U.S. long-term interest rate decline → high-beta rise" and "dollar depreciation → complex impact on Japanese and Asian export stocks (differences depending on currency hedging)." Reddit

Trade Scenarios: Three Cases

1. Dovish Surprise(Strongly hints at a September rate cut)
   U.S. interest rates decline, dollar weakens. Japan faces yen appreciation risk due to narrowing interest rate differentials, while external demand stocks face currency headwinds. Domestic demand defensives and low-interest-sensitive stocks are relatively strong. U.S. stocks move towards valuation expansion. Reuters

2. Balanced (Market Consensus)(Emphasizes data dependency)
   Range-bound market continues. In Japan, with wage hikes progressing, the core-core remains sticky, and the BOJ has another "move" in sight within the year. Forex remains stagnant. Reuters

3. Hawkish Shift(Emphasizes inflation resurgence)
   U.S. interest rates rise, stocks adjust. Dollar strength puts pressure on Asian currencies, Japan sees a pause in external demand due to yen depreciation, but caution is needed for worsening risks via import prices. Investors

Summary: Short-term "Wait," Mid-term "Assess"

In the short term, direction is determined by Powell's speech and U.S. interest rates, making it "event-driven." In the mid-term, if Japan's wage hikes and price pass-throughs become entrenched, keeping the core-core high, the BOJ will continue its "slow but sure normalization." For investors, diversification with pairs having different sensitivities to forex and interest rates, position size management before and after events, and cash flow analysis linked to inflation are key. ReutersInvesting.com

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