U.S.markets are in the red this morning as markets fall into "risk-off" mode.

"While the talking heads are pointing to EM again, I think Japan is a big factor," writes Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus.

"The Yen is jumping, as Japan’s inflation posts the fastest rise in 5 years, prompting people to pull back on bets for the BOJ to ease further."

Japan's core CPI — which, as Lutz notes, is the bank's favorite price metric — jumped 1.3% in December.

That beat economist expectations for the second straight month.

"Although the figure is still below the central bank’s 2% inflation target, it marked the fastest rise in over five years," says Lutz. "This has a bid under the Yen, and the unwind of the USDJPY 'Carry Trade' is a massive headwind this AM for the markets."

Basically, markets are rethinking just how "easy" the Bank of Japan is really going to be now that it is seeing strong inflation numbers. From the Wall Street Journal:

A few months ago, Takehiro Noguchi, a senior economist at Mizuho Research Institute, felt the BOJ might move as early as March this year to step up its easing measures to minimize the possible impact a sales tax hike coming in April could have on growth and prices.

But improving CPI data, coupled with a series of upbeat remarks by BOJ officials over the past few months, have made him change his mind.

“The probability of action in March now appears to be very low,” Mr. Noguchi said, adding that the BOJ appears to see no reason to move that early. If the bank is to act, it will be between April and September, he said.

Here's USDJPY:

See Also:

Is 'Abeism' Getting In The Way Of Abenomics?ROSENBERG: There Are More Signs Of Wage Inflation Becoming A RealityAn Economist Explains Why Wage Growth Is Poised To Take Off

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