USD/JPY eases as softer US CPI caps Dollar gains, Yen demand stays firm

• USD/JPY eases on Friday as softer-than-expected US inflation curbs the US Dollar’s earlier gains.
• Renewed Yen demand follows Japan’s election outcome and supportive domestic policy signals.
• Japanese officials signal a cautious but steady path toward policy normalisation.

The Japanese Yen (JPY) rebounds against the US Dollar (USD)on Friday, as the Greenback trims earlier gains after softer-than-expected US inflation data. At the time of writing, USD/JPY is trading near 152.85, easing from an intraday high of 153.78 and remains on track to post solid weekly losses of nearly 2.7%.

US inflation data for January came in slightly softer than expected overall, while core inflation broadly matched forecasts. Headline CPI rose 0.2% MoM, below the 0.3% forecast and slowing from 0.3% in December. On a yearly basis, CPI eased to 2.4% YoY, missing expectations of 2.5% and down from 2.7% in December.

Meanwhile, core CPI (ex-food and energy) increased 0.3% MoM, in line with forecasts and up from 0.2% previously, while the annual core rate held at 2.5% YoY, matching market expectations and edging down from 2.6% in December.

The data helped reinforce expectations for Federal Reserve (Fed) easing later in the year, particularly after this week’s stronger-than-expected labour report. Market pricing now reflects around 61 basis points (bps) of Fed rate cuts in 2026, up from about 58 bps just before the CPI release.

Renewed Yen demand is adding further downside pressure on USD/JPY, after Japan’s Prime Minister Sanae Takaichi secured a landslide victory in the general election.

The decisive result boosted investor confidence in Japan’s policy outlook, with markets viewing Takaichi’s pro-stimulus fiscal stance as supportive for domestic growth. Japan’s Finance Minister Satsuki Katayama said on Friday that Japan’s debt-to-GDP ratio is expected to decline further, adding that financial markets have stabilised after the initial shock triggered by plans to cut the consumption tax on food.

Bank of Japan (BoJ) board member Naoki Tamura said on Friday that the Bank of Japan “expects to continue raising interest rates in line with improvements in the economy and prices,” but stressed that policymakers “must avoid premature monetary tightening,” while also ensuring they “avoid sustaining price rises that cannot be described as moderate.”

Tamura added that “consumer inflation is stabilising,” but cautioned that the BOJ “must remain vigilant about the price outlook given the renewed downtrend in the yen.”