Core consumer prices in Tokyo suffered their biggest annual drop in more than eight years, data showed on Friday, an indication the hit to consumption from the corona virus crisis continued to heap deflationary pressure on the economy. The data, which is considered a leading indicator of nationwide price trends, reinforces market expectations that inflation will remain distant from the Bank of Japan’s 2% target for the foreseeable future.

“Consumer prices will continue to hover on a weak note as any economic recovery will be moderate,” said Dai-ichi Life Research Institute, which expects nationwide core consumer prices to fall 0.5% in the fiscal year ending March 2021. The core consumer price index (CPI) for Japan’s capital, which includes oil products but excludes fresh food prices, fell 0.7% in November from a year earlier, government data showed, matching a median market forecast. It followed a 0.5% drop in October and marked the biggest annual drop since May 2012.

On the other hand, Japan’s ruling Liberal Democratic Party (LDP) is seen urging the government to expand and create new state-backed loan and loan guarantee schemes to support firms hit by the COVID-19 pandemic.

Japan’s LDP calls might be extended until march’s zero-interest loan scheme for covid-hit firms. Japan’s LDP calls on the government to take steps to promote electric vehicles, battery development.

Following the above proposal, the government said in a statement released on Friday, Japan will extend until February next year a subsidy scheme that compensates companies for retaining jobs while temporarily closing the business due to the corona virus pandemic.

USD/JPY 4 Hour Chart:

Support: 104.15 (S1), 104.05 (S2), 103.89 (S3).

Resistance: 104.40 (R1), 104.57 (R2), 104.66 (R3).

Despite of the negative consumer price index, Yen is supported with corona virus relief stimulus and enjoys the broad-based USD weakness, we expect a bearish trend for USD/JPY.

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