Japan core inflation hits two-year high, Yen gains ground

The yen is higher on Friday. Iin the European session, USD/JPY is trading at 143.63, down 0.37% on the day.

Tokyo core inflation higher than expected at 3.6%

Tokyo core CPI climbed to 3.6% y/y in May, up from 3.4% in April and above the market estimate of 3.5%. This marked the highest level since Jan. 2025. Tokyo core inflation is viewed as the leading indicator of nationwide inflation trends and is closely monitored by the Bank of Japan. Tokyo core CPI, which excludes fresh food, was driven higher due to due higher non-fresh food prices, particularly rice which has soared 93% over the past year.

The jump in core CPI bolsters the case for a BoJ rate hike. The markets had anticipated a rate hike in October but today's strong inflation report could accelerate the timing of the next rate hike. At the same time, the uncertainty caused by US trade policy may force the BoJ to delay any rate hikes until the impact of US tariffs on Japan's economy becomes clearer.

Federal appeals court reinstates tariffs

US President Trump's controversial tariffs have sent the financial markets on wild swings. Now, US courts are weighing in on whether Trump exceeded his authority when he imposed the tariffs. A trade court panel ruled this week that most of the tariffs were illegal but on Thursday, an appeals court granted the Trump administration a temporary pause, keeping the tariffs in effect.

The legal fight over the tariffs has just begun and could go all the way to the US Supreme Court. In the meantime, the legal challenge has blown a hole in Trump's tariff policy and is causing even more uncertainty in the financial markets.

USD/JPY technical

• USD/JPY has pushed below support at 143.98 and 143.79. Below, there is weak support at 143.54 followed by 143.35.
• The next resistance lines are 144.23 and 144.42.