- The Japanese Yen attracts some sellers following the release of Japan’s National CPI print.
- A modest USD uptick further lends support to USD/JPY and lifts it above the 149.00 mark.
- The divergent BoJ-Fed policy expectations should cap any meaningful gains for the major.
The Japanese Yen (JPY) sticks to its negative bias through the Asian session on Friday on the back of data, showing that Japan’s National Consumer Price Index (CPI) slowed in February. The US Dollar (USD), on the other hand, attracts some buyers for the third successive day, which, in turn, assists the USD/JPY pair to build on the overnight bounce from the weekly low and climb further beyond the 149.00 mark in the last hour.
Any meaningful JPY depreciation, however, seems elusive in the wake of bets that the Bank of Japan (BoJ) will continue raising rates amid expectations that strong wage growth could boost consumer spending and contribute to rising inflation. Moreover, the uncertainty over US President Donald Trump’s policies and their impact on the global economy, along with geopolitical risks, should act as a tailwind for the safe-haven JPY.
Meanwhile, the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle soon amid a tariff-driven slowdown might hold back the USD bulls from placing aggressive bets. Furthermore, the divergent BoJ-Fed expectations might contribute to limiting losses for the lower-yielding JPY and capping the upside for the USD/JPY pair in the absence of any relevant market-moving economic releases from the US.
Japanese Yen retains its negative bias on the back of data pointing to easing domestic inflation
- Data released earlier this Friday showed that Japan’s National Consumer Price Index (CPI) rose 3.7% YoY in February, slower than 4% in the previous month. Meanwhile, the nationwide core CPI, which excludes fresh food items, climbed 3% during the reported month from a year earlier compared to 3.2% in January, though the reading was slightly above the 2.9% expected.
- Meanwhile, the preliminary results from Japan’s annual spring labor negotiations revealed that firms largely agreed to union demands for strong wage growth for the third consecutive year. This, in turn, is anticipated to boost consumer spending and contribute to broadening inflationary pressures in Japan, giving the Bank of Japan headroom to keep hiking rates.
- Moreover, BoJ Governor Kazuo Ueda said earlier this week that the Shunto result is largely in line with our January view and the central bank wants to conduct policies before it is too late. Ueda added that achieving a 2% inflation target is important for long-term credibility and the BoJ will keep adjusting the degree of easing if the economic, price outlook is to be realized.
- In contrast, the Federal Reserve signaled that it would deliver two 25 basis points rate cuts by the end of this year. Moreover, the central bank revised its growth outlook downward amid the uncertainty over the impact of the Trump administration’s trade policies. Adding to this, Fed Chair Jerome Powell said that tariffs are likely to dampen economic growth.
- Both Russia and Ukraine stepped up aerial attacks on Thursday. In fact, Ukraine struck Russia’s Engels airbase, which hosts Russian strategic bombers used to attack Ukraine, in the Saratov region with attack drones, causing a fire and explosions in the area. Furthermore, Ukraine’s air force said Thursday that Russia had launched 171 drones over its territory.
- Israel resumed heavy strikes across Gaza early this week, breaking the ceasefire with Hamas that was in place since late January. In response, Hamas fired three rockets at Israel on Thursday, without causing casualties. The development raises the risk of a further escalation of geopolitical tensions in the Middle East and underpins the safe-haven Japanese Yen.
- The US Dollar looks to build on its modest recovery move from a multi-month low touched earlier this week and further lends some support to the USD/JPY pair. However, the divergent BoJ-Fed policy expectations should keep a lid on any meaningful gains for the currency pair in the absence of any relevant market-moving economic releases from the US on Friday.
USD/JPY could accelerate the intraday move up once the 149.20-149.25 hurdle is cleared decisively
From a technical perspective, any further move up beyond the 149.25-149.30 immediate hurdle could assist the USD/JPY pair to reclaim the 150.00 psychological mark. Some follow-through buying beyond the 150.15 area might prompt a short-covering rally and lift spot prices to the 150.60 intermediate barrier en route to the 151.00 mark and the monthly peak, around the 151.30 region.
On the flip side, the Asian session low, around the 148.60-148.55 region, now seems to protect the immediate downside, below which the USD/JPY pair could accelerate the fall towards the weekly low, around the 148.28-148.15 area touched on Thursday. This is followed by the 148.00 mark and the 147.75 horizontal support, which if broken should pave the way for a fall towards the 147.30 region en route to the 147.00 mark and the 146.55-146.50 area, or the lowest level since early October touched earlier this month.
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.