Japanese Yen softens as CPI inflation cools to four-year low in February
- USD/JPY drifts higher to around 158.55 in Tuesday’s early Asian session.
- Japan’s National CPI cooled to a four-year low in February; core inflation missed estimates.
- Trump postponed the strike threat, but Iran denied any talks with the US.
The USD/JPY pair holds positive ground near 158.55 during the early Asian session on Tuesday. The Japanese Yen (JPY) softens against the US Dollar (USD) after the cooler-than-expected inflation report. Traders will keep an eye on the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) for March, which is due later on Tuesday.
Data released by the Japan Statistics Bureau on Tuesday showed that the National Consumer Price Index (CPI) rose by 1.3% YoY in February, compared to the previous reading of 1.5%. This figure registered its lowest level since March 2022 and was below the central bank’s 2% target.
Further details reveal that the National CPI ex Fresh food, the core inflation rate, stood at 1.6% YoY in February, down from 2.0% previously. The figure came in below the market consensus of 1.7%. The so-called “core-core” inflation, excluding prices of fresh food and energy, rose 2.5% YoY in February, compared to the previous reading of 2.6%.
Traders will closely monitor the situation in the Middle East. Any signs of rising tensions or a prolonged conflict could fuel concerns over inflation and rising energy prices. This, in turn, could underpin the Greenback against the JPY in the near term.
US President Donald Trump was offering Iran a five-day reprieve, pointing to new talks with Tehran that he believed could broker a deal resolving the conflict, according to Bloomberg. However, Iranian officials denied any talks with the US following Trump's remarks. Mohsen Rezaei, the senior military adviser to Iranian Supreme Leader Mojtaba Khamenei, said that the war will continue until Iran receives full compensation for the damage it has sustained.
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.
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