Japanese Yen weakens on soft Tokyo CPI print, fiscal woes and political risks

• 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) attracts fresh sellers during the Asian session after data released this Friday showed that consumer inflation in Tokyo – Japan's capital city – fell sharply to a nearly four-year low in January. This eases pressure on the Bank of Japan (BoJ) to raise interest rates soon. Furthermore, 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. Meanwhile, trade uncertainties fueled by US President Donald Trump's tariff threats and geopolitical risks keep a lid on the recent optimism. This is evident from the cautious mood around the equity markets, which might further 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, might cap the USD/JPY pair.

Japanese Yen is pressured by weak Tokyo CPI report, fiscal health concerns 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 bulls await sustained move and acceptance above 100-day SMA before placing fresh bets

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.)