FXTRADING Economic Data Summary (Asia-Pacific | 04/01)

Tokyo inflation in Japan continues to ease

Inflation in Tokyo continued to trend lower in March, with core CPI falling from 1.8% to 1.7%, coming in below market expectations and marking a second consecutive month below the central banks target. Looking deeper, the measure excluding fresh food and energy also softened, declining from 2.5% to 2.3%, indicating that underlying price pressures are gradually easing rather than reflecting only headline volatility.

The key driver behind this decline remains the energy component. Government subsidies have directly reduced electricity and gas costs, making overall inflation appear weaker. However, some structural shifts are beginning to emerge. For example, the decline in gasoline prices has narrowed, largely due to rising oil prices driven by Middle East tensions, which are gradually offsetting the dampening effects of policy measures. While inflation appears subdued in the short term, there is still room for fluctuations ahead. FXTRADING believes that Japans inflation slowdown is largely the result of combined policy support and energy dynamics. The broader trend remains moderate, but further increases in global energy prices could interrupt the pace of disinflation.

Eurozone inflation lifted again by energy

Inflation in the Eurozone rose notably in March, with headline CPI climbing to 2.5%, marking a cyclical high. This increase was almost entirely driven by energy, as prices shifted from previous contraction into clear growth, largely reflecting higher oil costs amid geopolitical tensions and directly pushing up overall price levels.

However, the picture changes once energy is excluded. Core inflation edged lower, with services, food, and industrial goods all showing signs of cooling. This suggests that demand conditions have not strengthened materially, and price transmission across businesses and households remains subdued. In this sense, the current inflation rebound appears more like an external shock than a reflection of underlying economic overheating. FXTRADING believes the Eurozone is currently experiencing a passive inflation uptick. While headline data may remain elevated in the near term, the lack of demand-driven support limits the sustainability of further inflation increases.

Clearer signs of slowing growth in Switzerland

Switzerlands KOF leading indicator fell sharply in March, dropping from 103.8 to 96.1. The magnitude of the decline is significant and well below expectations, suggesting that this is more than a short-term fluctuation and instead reflects a rapid cooling in growth momentum, potentially signaling economic pressure in the coming quarters.

From a structural perspective, the weakness is broad-based. Manufacturing and external demand have been particularly soft, with exports, order backlogs, and business conditions all deteriorating. This indicates that the slowdown is not only driven by domestic factors but also linked to weaker global demand, which is feeding back into export-reliant economies like Switzerland. FXTRADING believes the Swiss economy has entered a clear deceleration phase, and the deterioration in leading indicators carries strong forward-looking implications, with hard data likely to follow lower.

The Fed focuses on managing uncertainty

In the current environment, the Federal Reserve has adopted a clearly cautious stance. In recent remarks at Harvard, Powell refrained from providing a definitive policy path and instead emphasized the need for continued observation. In a phase where energy shocks are adding to uncertainty, premature action could introduce additional risks.

From a policy perspective, the Fed is more focused on whether inflation expectations remain anchored rather than reacting to short-term oil price movements. As long as expectations stay stable, energy-driven inflation is more likely to be transitory. At the same time, monetary policy operates with lags. Tightening policy too early could result in its effects materializing after the shock has already faded. FXTRADING believes the Feds current approach is to delay decisions and prioritize risk management in a highly uncertain environment. In the near term, policy is likely to remain on hold while waiting for clearer data signals.

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