Japanese Yen strengthens as Tokyo core CPI inflatin bolsters BoJ rate hike chance
- USD/JPY softens to near 159.30 in Friday’s early Asian session.
- Japan’s Tokyo core CPI inflation accelerates in August.
- The Jackson Hole symposium event will be in the spotlight later on Friday.
The USD/JPY pair declines to around 159.30 during the early Asian session on Friday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) as Japan’s Tokyo Consumer Price Index (CPI) inflation data strengthens the case for a September Bank of Japan (BoJ) rate hike. All eyes will be on a speech by Federal Reserve (Fed) Chair Kevin Warsh at the Jackson Hole symposium later on Friday.
Data released by the Statistics Bureau of Japan on Friday showed that the headline Tokyo CPI rose 1.9% YoY in August, compared to 1.8% in July. Meanwhile, the core CPI inflation climbed to 1.8% YoY in August from 1.7% in July (revised from 1.9%). This figure came in above the market consensus of 1.7%.
Finally, CPI excluding food and energy, which is closely watched by the BoJ as a better gauge of trend inflation, jumped 2.0% YoY in August, versus 1.8% prior (revised from 2.0%).
This report has reinforced expectations that the Japanese central bank may raise the interest rate as early as its September 17–18 policy meeting. This, in turn, provides some support to the JPY and acts as a headwind for the pair.
Later on Friday, traders brace for the speech from Fed Chairman Kevin Warsh in Jackson Hole, Wyoming, which could offer some hints about the outlook for US interest rates. Any hawkish remarks from Fed officials could help limit the Greenback’s losses in the near term.
Yen softens as BoJ’s Himino strikes hawkish tone without explicit hike signal
Analysts at MUFG observe that the Yen “weakened back in response” to Deputy Governor Himino’s latest remarks, reflecting “some disappointment that Himino was not more explicit” on the near-term policy path. They note that while he stopped short of “explicitly” signalling a rate hike next month, “his general tone was certainly on the hawkish side.” In both his speech and subsequent press conference, Himino stressed that the BoJ needed to “pay more attention to upside inflation risks than before,” which MUFG describes as “the closest you will get to guidance that the pace of rate hikes could be increased.”
Technical Analysis: USD/JPY remains capped under the 100-day SMA
In the daily chart, USD/JPY retains a capped tone as it sits beneath the 100-day Simple Moving Average (SMA) while holding just above the Bollinger middle band. The pair has slipped back from recent highs and the Relative Strength Index (RSI) at 47.09 leans slightly to the downside, suggesting fading upside momentum as prices oscillate between the mid-line and the upper end of the recent volatility envelope.
On the topside, immediate resistance is reinforced by the 100-day SMA at 160.00, with the Bollinger upper band near 160.30 acting as the next barrier that bulls would need to reclaim to re-establish a sustained advance. On the downside, initial support is located around the Bollinger middle band at 158.85, ahead of a deeper cushion at the lower band near 157.45, where a break would likely open the door to a broader corrective phase.
(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.