06:32 AM EDT, 08/30/2024 (MT Newswires) -- The yen (JPY) was little changed early Friday similar to all G10 foreign exchange rates, but that shouldn't take away from the significance of the inflation data for Japan released earlier, said Mitsubishi UFG.

The data in general was much stronger than expected with the core rate accelerating from 2.2% y/y to 2.4% y/y in August and the core-core rate picking up from 1.5% to 1.6% -- the consensus was for a drop to 1.4%, wrote the bank in a note to clients.

Japan's job-to-applicant ratio picked up while industrial production rebounded 2.8% m/m in July after the sharp 4.2% drop in June, although this rebound was less than expected, stated MUFG.

The data is entirely consistent with what the Bank of Japan has argued is required to justify further rate increases -- strong wage growth feeding through into inflation, pointed out MUFG. The latest wage data saw the same sample cash earnings y/y rate increase from 2.3% to 5.4%.

The services side of the Tokyo economy is also seeing a pick-up in inflation with service inflation accelerating from 0.5% to 0.7% -- the Tokyo services inflation rate is lower than the nationwide rate due to specific factors like education subsidies. A tax rebate implemented by the government, effective June, may also be helping underlying demand conditions which are also being reinforced by the return of positive wage growth in real terms.

The data is consistent with MUFG's view that the BoJ will hike rates again this year, in December. Recent comments from Governor Kazuo Ueda and Deputy Governor Ryozo Himino are certainly consistent with a move, added the bank.

Both argued the case for a hike if the BoJ's forecasts are realized and Friday's data helps that case, according to MUFG. With the very sharp rebound in global risk appetite, the argument of delaying a hike for financial market reasons is weakening by the day and the bank suspects upcoming speeches could soon drop references to watching financial markets with a "sense of urgency."

There are currently only 8bps of hikes priced in by year-end, which MUFG maintains is too low and so current OIS market pricing is a potential source of upside risk for the yen over the coming weeks.