Japanese Yen bulls regain control as strong Tokyo CPI reaffirms BoJ rate hike bets

• The Japanese Yen attracts buyers for the second straight day amid a combination of supporting factors.

• A federal appeals court reinstates Trump’s tariffs and revives safe-haven demand.

• Japan’s upbeat data reaffirms bets for more BoJ rate hikes this year and lends additional support to the JPY.

The Japanese Yen (JPY) attracts strong follow-through buying for the second straight day on Friday and recovers further from a two-week low touched against its American counterpart the previous day. The global risk sentiment took a hit after a federal appeals court on Thursday paused a recent decision to block US President Donald Trump’s sweeping tariffs. This is evident from a generally weaker tone around the equity markets and helps revive demand for traditional safe-haven assets, including the JPY.

Meanwhile, Japan's upbeat macro data released earlier today, including strong Tokyo consumer inflation figures, backs the case for more interest rate hikes by the Bank of Japan (JPY) and lends additional support to the JPY. The US Dollar (USD), on the other hand, consolidates following the previous day's dramatic turnaround amid concerns about the worsening US fiscal situation and bets that the Federal Reserve (Fed) will stick to its easing bias. This further contributes to the USD/JPY pair's ongoing downfall.

The Japanese Yen draws support from the global flight to safety and hawkish BoJ expectations

A federal appeals court paused a separate trade court ruling and reinstated US President Donald Trump's sweeping trade tariffs late Thursday. This adds a layer of uncertainty in the markets and tempers investors' appetite for riskier assets, which, in turn, benefits the safe-haven Japanese Yen.

The Statistics Bureau of Japan reported this Friday that the headline Consumer Price Index (CPI) in Tokyo – Japan's capital city – rose 3.4% from a year earlier in May as compared to 3.5% in the previous month. Meanwhile, a gauge that excludes volatile fresh food climbed a more than two-year high.

In fact, the Core CPI came in at 3.6% YoY following a 3.4% rise in April and exceeded median market forecasts for a 3.5% gain. Furthermore, a separate index that strips away the effects of both fresh food and fuel costs rose 3.3% in May in the year to May after a 3.1% rise recorded in April.

The Tokyo CPI has exceeded the Bank of Japan's 2% target for three straight years and pointed to sticky food inflation. This will keep the central bank under pressure to hike rates further, though the uncertainty over US tariffs might force the BoJ to maintain the wait-and-see approach.

Separate data showed that Japan’s Industrial Production shrank 0.9% in April, marking a reversal from a 0.2% rise in March. The contraction, however, was smaller than anticipated. Moreover, a survey revealed that manufacturers expect output to increase by 9.0% in May and drop by 3.4% in June.

Adding to this, Japan's Retail Sales rose more than expected, by 3.3% YoY in April, compared to 3.1% in the prior month. This comes on top of expectations that bumper wage hikes will boost private consumption and backs the case for further policy normalization by the BoJ.

From the US, the second Q1 GDP estimate published by the Bureau of Economic Analysis on Thursday showed that the economy contracted by 0.2% annualized rate during the January-March period. The reading, however, was better than the 0.3% fall initially expected and consensus forecast.

The US Department of Labor reported that the number of Americans who filed for unemployment insurance for the first time, known as Initial Jobless Claims, climbed to 240K for the week ending May 24. This marked a substantial increase from the previous week's revised tally of 226K.

The market focus now shifts to the release of the US Personal Consumption Expenditure (PCE) Price Index. The crucial data will influence market expectations about the Fed's rate-cut path, which, in turn, should provide some meaningful impetus to the US Dollar and the USD/JPY pair.

USD/JPY seems vulnerable to extending the downfall further below the 144.00 round figure

From a technical perspective, the overnight failure near the 61.8% Fibonacci retracement level of the recent downfall from the monthly peak and the subsequent fall favors the USD/JPY bears. Moreover, negative oscillators on daily/hourly charts suggest that the path of least resistance for spot prices is to the downside. Some follow-through selling below the 143.45 region will reaffirm the bearish outlook and drag the pair to the 143.00 mark. The downward trajectory could extend further towards the 142.40 intermediate support en route to the 142.10 area, or the monthly low touched on Tuesday.

On the flip side, the 144.25-144.30 region now seems to act as an immediate hurdle, above which the USD/JPY pair could aim to reclaim the 145.00 psychological mark. A sustained strength beyond the latter should pave the way for a move toward the next relevant hurdle near the 145.65 horizontal zone en route to the 146.00 round figure and the overnight swing high, around the 146.25-146.30 region.