The Japanese Yen (JPY) strengthened slightly on Friday, pushing the USD/JPY pair lower for a second consecutive session during the Asian trading hours. The pair slipped to the 155.65 region after the release of Tokyo inflation data, although it still remains on track to post a weekly gain. Market participants remain cautious about expecting a deeper pullback from the recent two-week high recorded earlier in the week.
Fresh economic data showed that Tokyo’s core Consumer Price Index (CPI) eased below the Bank of Japan’s (BoJ) 2% inflation target for the first time since 2024. Even so, inflation levels remain significantly higher than Japan’s historical averages. Combined with recent hawkish remarks from central bank officials, the figures continue to support expectations that the BoJ could proceed with further policy tightening, offering moderate support to the Yen.
BoJ Governor Kazuo Ueda reiterated that the central bank is prepared to continue raising interest rates if economic growth and inflation projections materialize as expected. Similarly, board member Hajime Takata emphasized that any additional rate hikes would likely be gradual. Growing geopolitical tensions and trade uncertainties also increased demand for the safe-haven Yen, placing downward pressure on USD/JPY.
However, not all signals favor Yen strength. Reports indicate that Japan’s Prime Minister Sanae Takaichi expressed concerns about further monetary tightening during discussions with the BoJ leadership. Additionally, worries over Japan’s fiscal stability may limit aggressive bullish positions on the currency.
On the US side, the Dollar remains near its monthly highs, providing underlying support to the pair. The minutes from the January Federal Open Market Committee (FOMC) meeting revealed policymakers are not rushing toward interest-rate cuts and even discussed the possibility of rate hikes if inflation fails to ease. This stance helped offset concerns related to the economic impact of US policy decisions and kept the Greenback supported.
Market attention now turns to the upcoming US Producer Price Index (PPI) release later in the North American session. Speeches from key Federal Reserve officials could further influence Dollar demand and determine the next direction for USD/JPY. Given the overall backdrop, traders expect any sharp declines in the pair to attract buyers rather than trigger a sustained downtrend.
