USD/JPY flows: Suzuki says Japan is no longer in deflation

Suzuki says Japan is no longer in deflation as strong trend of wage hikes happening now, which seems to prove earlier local media report right. It is a walk over as the Japanese government denied such report last week. However, the headline has limited impact as market participants have already priced in a policy change in April the latest. A hawkish tilt would be a signal for March hike, an official change in rhetoric is not enough. Apart from Suzuki, we also heard from Japan Chief Cabinet Secretary Hayashi saying he expects the BoJ to stably hit its inflation target. The stars are lining up but our central forecast remains a March forward guidance change and April hike as very likely BoJ would wait for the 2nd and 3rd round of negotiation to ensure small and medium firms hike by similar magnitude. 

USD/JPY erased earlier gains to still trade 0.06% higher at 148.39 with JGBs yields outpacing U.S. T-yields.