Japanese Yen slides as Tokyo CPI tempers BoJ rate hike bets amid fiscal and political concerns
- 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) remains depressed through the Asian session on Friday as softer consumer inflation in Tokyo – Japan's capital city – seems to have tempered bets for an early interest rate hike by the Bank of Japan (BoJ). Adding to this, 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 undermine the JPY. This, along with a modest US Dollar (USD) strength, lifts the USD/JPY pair closer to the 154.00 mark and the 100-day Simple Moving Average (SMA) pivotal resistance.
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 might contribute to limiting losses for the safe-haven JPY. The USD, on the other hand, might struggle to attract any meaningful buyers amid bets for more rate cuts by the US Federal Reserve (Fed) and concerns about the central bank's independence. This, in turn, warrants some caution before positioning for any further USD/JPY appreciation.
Japanese Yen weakens amid reduced BoJ rate hike bets, fiscal woes and political uncertainty
- 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 looks to build on strength beyond 100-day SMA pivotal hurdle
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.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
