Yen upbeat as Japan's core inflation accelerates

The Japanese yen stays upbeat against the dollar on Friday following higher inflation data that increases possibility of rate hike by BoJ. Data released earlier today showed that Japan's annual consumer price index (CPI) remained well above the Bank of Japan's (BoJ) target of 2% in May. Japans consumer prices excluding fresh food quickened for a third month to 3.7% from a year earlier in May, according to a Ministry of Internal Affairs released Friday. Thats the fastest pace since January 2023. Food inflation was again a major driver, with the price of rice the nations staple food jumping 102% from a year earlier. Service prices, a metric closely watched by the BOJ, rose 1.4% from a year earlier, slightly more than 1.3% in April. However, the BoJ earlier this week signaled its preference to move cautiously in normalizing still-easy monetary policy and decided to slow the pace of reduction in its bond purchases from fiscal 2026 that could limit gains in the counter. Nevertheless, safe haven demand amidst persistent trade-related uncertainties and rising geopolitical tensions in the Middle East could keep the yen supported. Currently, USDJPY is seen quoting at 145.29, down 0.14% on the day. Meanwhile, on the NSE, JPYINR futures are down 0.93% at 59.42.

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India may improve trade deficit with Japan by selling quality rice

India is the world's largest exporter of rice, with its output mainly going to countries in West Asia and Africa. Thousands of rice varieties are harvested in the country, including the glutinous rice (commonly known as sticky rice) in the northeastern states. With the Japanese government considering increasing its rice imports, there is a potential for India to harbour a new trade relationship with this eastern rice-loving friend. Rice is more than a mere staple for Japan; it is near sacred and the country takes pride in its delicious domestic varieties (called Japonica rice) and its self-sufficiency in production. However, in the past months, Japan has been grappling with soaring rice prices: an issue that has created strong economic and political repercussions in the country. As of April-May 2025, rice prices doubled compared to last year reaching a high of 5,000JPY ($35) for 5 kg (a common selling size). As prices soared, rice started to disappear from supermarket shelves, restaurant meals and bowls at home, creating a strong undercurrent of dissatisfaction amongst the consumers. The government undertook some measures to ease prices, like importing additional stocks from the United States, South Korea, Taiwan and releasing a third of its emergency rice stockpiles to reduce the supply pressure. The measures proved ineffective due to the inherent slow and inefficient distribution system, with Japan's powerful protection lobby JA Zen-Noh (National Federation of Agricultural Cooperatives Association) at the centre. A slew of rare and bold measures followed after a political upheaval caused by an insensitive comment by the agriculture minister, who was immediately replaced amidst the economic and now political crisis. The extraordinary measures involved releasing more emergency stockpiled rice, but jumping the JA-led wholesale system to sell directly to retailers and at prices set by the government. This promised to bring prices down to less than half: in the range of 2000 JPY for 5 kg. The measure was executed within a week, rather expeditiously for a usually slow-moving Japan, providing much relief to the people. Buying older harvests of sticky rice is usually not preferred by Japanese households as the rice loses its moistness. This is unlike India, where drier and older rice is preferred as in the case of Basmati. The price pressure was so high, however, that Japanese people queued up outside supermarkets as early as 3 am to purchase the cheaper stockpiled rice. The recent rice inflation was led by both demand- and supply-side factors, some of which may become more long-term constraints in the Japanese economy. Understanding these may be a base for building a new potential trade relationship with Japan in agriculture. Historically, the rice market has been insulated from foreign competition and controlled by the government that regulated production, marketing and distribution, as well as artificially set prices to support small farmers. Japan's Gentan Policy (translated as Reduction Policy) gave monetary incentives to farmers to shift away from rice production to other crops. The policy was discontinued in 2018, but its aftereffects continue to affect production. The government subsidised production of feed rice and set high tariffs on imported rice. The cost of such measures and others is now being borne by Japanese consumers. Another significant supply-side factor is the aging and declining farmer population. The average age of a Japanese farmer is 67.8 years. The number of rice-farming households has fallen from approximately 4.5 million in 1970 to 700,000 in the 2020s. As a result, rice production has reduced steadily from 12.5 million tonnes in the 1970s to 6.7 million tonnes in 2024. However, the present rice inflation is not a result of a sudden fall in production, which in 2024 was marginally more than the previous year. But there was a scare about possible shortages due to adverse weather with unusually harsh summers over the past two years. The earthquake in August 2024 followed by further disaster warnings led to panic buying amongst consumers. Additionally, growing tourism led to strong pressure on rice from the demand side as the island country of 126 million people received a record 36 million tourists in 2024. While some of the above factors were temporary, some may continue to pose challenges for the Japanese market in the long run. As the market factors evolve, it is expected that Japan's need to import rice will grow in the future. The country currently imports about 770,000 tonnes of rice tariff-free under the Minimum Access System of WTO and tariffs are significantly high beyond this quota. A majority of rice imports come from the US, followed by Thailand, China and Australia. Japan's plan to boost rice imports in the coming years, a volatile geopolitical scene and ongoing tariff negotiations with the US, could lead to a reduction in rice tariffs. India's rice exports to Japan comprise mainly the Basmati variety catered to the Indian diaspora. With the ban on non-basmati rice exports lifted last year, certain varieties (such as Joha or chukuwa rice) grown in the Northeastern states can be identified and if required modified to target the taste and quality-sensitive Japanese consumers. Also, as East Asian cuisines such as Korean and Japanese are gaining more popularity, there is also a rising domestic market for sticky rice varieties. Focusing on the international and domestic markets may increase the farm income of the non-basmati growing rice belt, such as farmers in the Northeast. It may also improve India's large trade deficit with Japan.

Mint

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Currency Traders Are Ditching Dollar for Euro on Options Bets

(Bloomberg) -- The euro is taking on a bigger role in the global currency options market as traders skirt around the dollar given the risks from unpredictable US policy and a global trade war. There's been a shift in trading volumes. Around 15% to 30% of contracts tied to the dollar versus major currencies were switched to the euro, looking at data from the Depository Trust & Clearing Corporation for the first five months of this year versus the final five months of 2024. There are also signs the euro is being used as a haven — traditionally the dollar's role — and for bets on big moves. While deals involving the dollar still dominate in the $7.5 trillion-a-day currency market, this could be early evidence that the greenback is facing greater competition as the world's reserve currency. Traders are sidestepping the dollar after its biggest slump in years, with Europe's common currency looking like a key beneficiary as the region's markets benefit from billions in government stimulus spending. 'If we're moving to an environment in which the European flow story is more important, then we could be moving to an environment in which it's euro pairs which are driving everything,' said Oliver Brennan, options strategist at BNP Paribas SA. So far this year, Europe's common currency has rallied 11% against the dollar, hitting its highest since 2021 at above $1.16. Meanwhile the dollar has slid against every major currency, with a gauge down over 7% to its lowest since 2022. That's undermining trust in US assets. And the slump may not be over yet. Hedge fund heavyweight Paul Tudor Jones just predicted another 10% drop for the dollar over the next year. Risk reversals, a gauge of options sentiment, are becoming increasingly negative on the dollar against the yen, whereas they are turning less bearish on euro-yen — a 'really important signal' on the euro for Brennan. As markets question the dollar's stability, implied volatility in the euro against the yen is looking the calmest in nearly four years relative to swings between the greenback and Japanese currency. 'The market is thinking that dollar-yen will be more volatile than euro-yen in a negative market shock, which is the opposite to how the market has traded these events in the past,' said Brennan. 'If that's the thinking, then it means the market sees the euro as more of a safe haven than the dollar.' The cost of options is also a driver, said Ben Ford, currency strategist at Macro Hive. While implied volatility generally has eased after spiking in April's market chaos, it stands at nearly 11% over three months for dollar-yen, compared with under 9% for euro-yen. 'The market is finding cheaper ways to express its view, especially given the view is probably for euro outperformance,' Ford said. Traders also seem to be favoring the euro over the dollar when it comes to hedging or betting on big directional moves on the yen. That's evident in so-called 10-delta fly spreads, a gauge of demand for outsized swings, where the gap between euro-yen and dollar-yen has been steadily widening since April. Of course, the dollar has been written off many times before. Just at the start of this year, the euro was languishing near parity with the greenback, with many investors certain the common currency's value would fall below its US peer. Instead Trump's April's tariff announcements saw investors dump dollar assets. While US stocks have recovered since then, the dollar risk premium remains elevated, and it may require a return to US exceptionalism to reverse the trend, according to Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence. Meanwhile the European Central Bank's President Christine Lagarde has called on policymakers to seize the moment and increase the euro's global profile. 'There's a push and a pull — the pull has been that there's potentially more safe assets to buy in Europe and more growth expectations in Europe,' said BNP's Brennan. 'And the push has been tariff uncertainty, risks to US exceptionalism, and the macro story.' More stories like this are available on

Mint

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Indian stock market: Israel-Iran war to India-US trade deal— 5 factors that hold keys to trend reversal on Dalal Street

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