BOJ and CPI

The Bank of Japan decided to stick it to the politicians and hike interest rates by 25 basis points to 0.5%. The vote was 8-1 in favor of the move. So you'd expect the yen to surge and global interest rates to rise, right? Wrong. You see, the BOJ also indicated that further increases will be gradual. Traders took that as a green light to keep on keeping on with those carry trades. Notably, higher-yielding "carry currencies" like the Australian dollar and New Zealand dollar rallied on the BOJ move.

Meanwhile, here on the home front, the Consumer Price Index surprised to the upside. Overall prices rose 0.2% in January vs. the 0.1% expectation. "Core" CPI (excluding food and energy) jumped 0.3%, above the 0.2% forecast. The year-over-year rate of core CPI inflation rose to 2.7% from 2.6%, leaving it well above the Federal Reserve's 1% - 2% comfort zone.

Some highlights: Services inflation has gained 0.3% the past three months in a row. Food and beverage inflation jumped to 0.7% from -0.1% a month earlier. Lower gas and vehicle prices reduced transportation inflation, and education and communication prices dipped. But a big spike in tobacco prices (+3.1%) and medical care (+0.8%) helped drive overall inflation higher.