The Japanese yen is drawing increased attention from traders as shifting inflation dynamics and policy expectations begin to reshape the currency landscape. Recent developments in Tokyo’s economic data have revived discussions around the Bank of Japan’s next moves, while global uncertainty is driving investors towards safer assets.
The Japanese yen continued to gain ground on Friday, breaking decisively below the 144.00 level against the US dollar.
This move followed unexpectedly strong inflation data out of Tokyo, fuelling renewed speculation that the Bank of Japan (BoJ) could begin tightening monetary policy sooner than previously anticipated by the markets.
The Tokyo core Consumer Price Index (CPI), often viewed as an early indicator of national inflation trends, posted a higher-than-expected reading.
This surprise prompted traders to reassess their interest rate outlook, with market consensus now leaning towards a potential 25 basis point hike in July.
Overnight index swaps have begun pricing in increased odds of further gradual policy tightening by the BoJ throughout the remainder of 2025.
In comments delivered on Friday, BoJ Governor Kazuo Ueda addressed the bank’s recent downgrade of its inflation forecast. He attributed the revision to a range of external factors, including lingering trade uncertainties, a decline in cost-push inflation, and weaker global oil prices.
Despite this, Ueda reaffirmed the central bank’s commitment to its 2% inflation target, suggesting that future policy moves will be guided primarily by domestic factors such as wage growth and consumer spending.
As one of the few major central banks still transitioning away from ultra-loose monetary policy, the BoJ’s cautious approach makes the yen especially sensitive to any signs of rising inflation.
Analysts expect a gradual shift towards policy normalisation, especially if domestic demand shows signs of resilience.
The yen also benefitted from heightened demand for safe-haven assets after a US appeals court reinstated former President Trump’s reciprocal tariff initiative.
The legal reversal sparked fresh concerns over escalating trade tensions, reversing earlier risk-on sentiment and putting downward pressure on the US dollar.
Traditional safe havens, including the yen and the Swiss franc, saw renewed inflows as investor sentiment turned cautious.
This latest development adds another layer of uncertainty for global trade, particularly in Asia. With its sizeable trade surplus and deep integration into global supply chains, Japan may once again find itself under scrutiny if protectionist measures from the US begin to escalate.
On 29 May, USD/JPY briefly touched a session high of 146.284 before reversing course and entering a sustained downtrend that extended into 30 May.
Price action remains consistently below the 30-period moving average, a clear indication of bearish market sentiment.
Attempts at short-term recoveries have repeatedly met resistance at the 10- and 30-period moving average crossovers.
The MACD indicator crossed below its signal line during the initial stages of the decline and has continued to signal weakness, although the histogram is now hinting at early stabilisation.
Key support is forming near 143.441, with price consolidating just above this level.
A break below could open the door to further losses towards the 143.00 zone, while a return above 144.20 would be needed to alter the near-term bearish outlook.
Unless USD/JPY can reclaim the 144.50 area in early trading next week, a retest of the 143.00–143.40 support region is likely.
However, upcoming US inflation and employment data could significantly influence the pair’s direction.
A stronger-than-expected print may revive expectations of further tightening by the Federal Reserve, potentially limiting further yen appreciation.
At present, bullish momentum for the yen remains firmly in place, supported by both solid domestic inflation signals and rising global economic uncertainty.
Stronger-than-expected price data from Tokyo has bolstered confidence that the Bank of Japan may be preparing to gradually move away from its ultra-loose stance, reinforcing the yen’s appeal.
At the same time, growing concerns around trade tensions and broader geopolitical risk have reignited demand for traditional safe-haven currencies.
As markets turn their attention to upcoming US inflation and labour market figures, the near-term trajectory of USD/JPY will likely hinge on a delicate balance between domestic monetary policy signals and shifting global risk sentiment.
Unless there is a significant surprise from US macro indicators, the current environment appears favourable for continued yen strength—though volatility is expected to remain elevated.
Click here to open account and start trading.
Follow us on:
