Yen carry trade lives on

For a while more at least. Bloomberg reports the Bank of Japan's interest rate decision yesterday:

The Bank of Japan held its benchmark interest rate at 0.25 percent, averting a clash with government officials who say household spending and inflation are too weak to withstand higher borrowing costs.

The decision was split six-to-three, the bank said today in Tokyo, prompting traders to bet on a February increase. Board members were divided over the outlook for consumer spending, Governor Toshihiko Fukui said...

The central bank today said in a report that the economy has "so far deviated slightly downward from the outlook" made in October. The economy and prices are still expected to "develop broadly in line" with expectations, it said.

Indeed, the recent economic data have not been too encouraging. Exports were up 11.8 percent in November from a year earlier, boosting the trade and current account surpluses, but consumer confidence fell in December. Demand for services, as measured by the tertiary index, fell 0.3 percent in November, while the leading index for November has been revised down to 18.2 from 20.0.

But perhaps the yen carry trade is diverting the impact on demand elsewhere.

Like the US for example. Reuters reports that inflation in the US picked up again in December.

... [T]he Labor Department said core consumer prices, which exclude food and energy costs, rose by a relatively tame 0.2 percent in December after being flat in November. The overall Consumer Price Index was up 0.5 percent after also being unchanged in the prior month.

But that came with signs of strength in the economy.

An index prepared by the Philadelphia regional Federal Reserve bank showed business activity at its highest level since August, when concern about a slowdown was growing.

The index, which is taken as an early indicator of the health of U.S. manufacturing -- hit 8.3 in January, compared with a revised -2.3 in December...

A Commerce Department report said housing starts unexpectedly climbed 4.5 percent in December to a seasonally adjusted annual rate of 1.642 million units from November's 1.572 million...

The Labor Department said the number of Americans filing new claims for jobless benefits dropped by a surprisingly large 8,000 last week to 290,000, lowest since last January.