Japanese Yen sticks to Tokyo CPI-inspired losses vs. firmer USD; USD/JPY climbs to 154.00
|- Japanese Yen drifts lower as softer Tokyo CPI prints temper hopes for an immediate BoJ rate hike.
- Fiscal woes and political uncertainty also weigh on the JPY, though intervention fears limit losses.
- Concerns about the Fed’s independence might cap attempted USD recovery and the USD/JPY pair.
The Japanese Yen (JPY) maintains its offered tone through the Asian session on Friday, which, along with the emergence of some US Dollar (USD) buying, keeps the USD/JPY pair well bid around the 154.00 mark. Softer Tokyo consumer inflation figures temper bets for an early interest rate hike by the Bank of Japan (BoJ). This, along with worries about Japan's financial health amid Prime Minister Sanae Takaichi's reflationary policies and political uncertainty ahead of the snap election on February 8, weighs on the JPY.
However, expectations of coordinated US-Japan intervention to strengthen the JPY might hold back bearish traders from placing aggressive bets. Furthermore, trade uncertainties on the back of US President Donald Trump's tariff threats and geopolitical risks could limit losses for the safe-haven JPY. The USD, on the other hand, lacks bullish conviction amid the US Federal Reserve (Fed) independence concerns and prospects for lower US interest rates. This warrants some caution before positioning for any further USD/JPY gains.
Japanese Yen remains depressed as softer Tokyo CPI tempers BoJ rate hike bets amid fiscal and political concerns
- A government report released earlier this Friday showed that the headline Consumer Price Index (CPI) in Tokyo – Japan's capital city – fell from 2.0% prior to 1.5% in January, marking its weakest reading since February 2022.
- Adding to this, core CPI, which excludes volatile fresh food prices, declined to 2% from 2.3% in December, while a gauge that excludes both fresh food and energy prices eased to 2.4% in January from 2.6% in the previous month.
- The data points to softer demand-driven price pressure and reduces the urgency for the Bank of Japan to tighten its monetary policy further, following December’s decision to raise the benchmark rate to 0.75%, or a 30-year high.
- Japan's Prime Minister Sanae Takaichi is basing her snap election campaign on expanded stimulus measures and has pledged to suspend the consumption tax on food, raising concerns about the country's fiscal sustainability.
- Chatter of an unusual rate check by the New York Federal Reserve last Friday followed a similar move from Japan’s Ministry of Finance, raising the chance of a joint US-Japan intervention to stem weakness in the Japanese Yen.
- US President Donald Trump on Thursday announced plans to decertify all Canada-made aircraft and warned of imposing 50% tariffs on such planes until American-made Gulfstream jets receive certification in Canada.
- This marks a fresh escalation of tensions between the two North American countries, which, along with rising US-Iran tensions and the protracted Russia-Ukraine war, should contribute to limiting losses for the safe-haven JPY.
- In fact, the US continues to deploy warships and fighter jets across the Middle East. Adding to this, US Secretary of War Pete Hegseth stated that America is fully prepared to act decisively under President Trump’s orders.
- Russia had reiterated its invitation for Ukrainian President Volodymyr Zelensky to come to Moscow for peace talks, though a deal remains elusive amid profound differences between the two countries' negotiating stances.
- Meanwhile, the US Dollar gets a minor lift amid rumors that Kevin Warsh will be the new Fed Chair, further lending support to the USD/JPY pair. Trump will announce his pick for the next Fed chair on Friday morning.
- Traders will further take cues from the release of the US Producer Price Index (PPI), which, along with Fed speak, would drive the USD demand and provide some impetus to the USD/JPY pair heading into the weekend.
USD/JPY could accelerate the positive move once the 38.2% Fibo. hurdle is cleared
The 100-day Simple Moving Average (SMA) continues to rise to 153.98, while the USD/JPY pair holds just beneath it, keeping the near-term tone heavy against an otherwise upward-sloping trend filter. A recovery above this dynamic barrier would stabilize the outlook.
The Moving Average Convergence Divergence (MACD) stays in negative territory, and its recent contraction hints at easing downside pressure. The Relative Strength Index (RSI) prints 37.81, below the 50 midline but recovering from prior oversold territory, suggesting bearish momentum is moderating.
Measured from the 159.13 high to the 152.07 low, the 38.2% Fibonacci retracement level at 154.77 should cap initial rebounds. A daily close above the latter would improve the recovery profile and could extend gains as momentum normalizes, whereas failure to clear the said barrier would keep rallies contained and maintain a cautious bias.
(The technical analysis of this story was written with the help of an AI tool.)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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