Japanese Yen flatlines after CPI inflation report
- USD/JPY steadies around 159.05 in Friday’s early Asian session.
- Japan’s core CPI inflation accelerated in July, rising by 1.8%.
- BoJ is likely to raise its policy interest rate from 1.0% to 1.25% at its upcoming September meeting.
The USD/JPY pair holds steady near 159.05 during the early Asian session on Friday. Growing speculation that the Bank of Japan (BoJ) could raise interest rates next month offsets the weaker Gross Domestic Product (GDP) data. The preliminary readings of the US Purchasing Managers Index (PMI) will be in the spotlight later on Friday.
Data released by Japan Statistics Bureau on Friday showed that the National Consumer Price Index (CPI) inflation climbed to 2.0% YoY in July from 1.6% in June (revised from 1.7%).
Meanwhile, the core CPI, which includes energy-related items but excludes volatile fresh food prices, rose 1.8% YoY in July, compared to 1.6% in the previous reading. This report could bolster the case for a rate hike from the Japanese central bank.
“Core consumer inflation is likely to re-accelerate given renewed tension in the Middle East, which will push up crude oil prices and add to price pressures from a weak yen,” said Masato Koike, senior economist at Sompo Institute Plus, adding that he expects the BOJ to raise interest rates in September.
Overnight index swaps are pricing in an about 80% chance of a BoJ rate hike in the next policy meeting, according to Reuters.
Ongoing tensions in the Middle East could weigh on the JPY and create a tailwind for the pair as Japan is heavily dependent on Middle East oil. US President Donald Trump on Wednesday announced the most severe economic action ever taken against Iran, saying this will be economic conflict and isolation on an unprecedented scale and the countries allowing financial aid to Iran will face severe economic consequences.
Yen outlook improves as BoJ tightening, reforms and growth underpin support
Rabobank’s Senior FX Strategist Jane Foley argues that the fundamental backdrop for the Yen is gradually becoming more constructive, even as she maintains a cautious stance on near‑term USD/JPY upside risks. She notes that “firmer BoJ policy rates, structural reforms and a resilient economy suggest there is a path for the JPY to find support in the months ahead,” reinforcing her broader view that domestic policy normalization and ongoing reform efforts in Japan can help counterbalance US fiscal dynamics and shifting demand for long‑dated Dollar debt.
Technical Analysis: USD/JPY remain capped under the 100-day SMA
In the daily chart, USD/JPY maintains a bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger Bands 20-period SMA. This alignment keeps the pair structurally capped despite some stabilization in momentum, with the Relative Strength Index (RSI) near 43, hinting at a modest recovery from oversold territory rather than a decisive bullish shift.
On the topside, initial resistance emerges at the Bollinger middle band near 159.45, followed by the 100-day SMA at 160.00, while a more distant barrier aligns with the upper Bollinger band close to 163.30. On the downside, the only nearby structural cushion is the lower Bollinger band around 155.50, and a clear break below the recent lows would likely expose this zone, reinforcing the broader bearish tone as long as price remains under the clustered resistance around the 159.45–160.00 area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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