USD/JPY Drops 0.22% to 143.85 as Tokyo’s Core Inflation Reaches 2-Year High of 3.6%

Key Moments:Tokyo’s consumer prices saw a 3.6% increase in May, the highest rise in around two years.A growing consensus among market participants points to a 25-basis-point interest rate hike by the Bank of Japan coming in July.The Japanese yen strengthened against the US dollar on Friday, with the USD/JPY falling 0.22% to 143.85.Yen Strengthens Amid Inflation Surprise

The USD/JPY dropped 0.22% and hit 143.85 on Friday as the yen’s upward momentum persisted. The rally followed new consumer price index (CPI) data from Tokyo, according to which core inflation came in higher than anticipated in May. This, in turn, added to the expectations that the Bank of Japan (BOJ) will choose to increase interest rates by 25 basis points during the meeting set to be held in July.

In addition to domestic inflation dynamics, the yen received a boost from global risk sentiment. Traders gravitated towards safe-haven assets after a US federal appeals court ruled to reinstate the Trump administration’s tariff policies.

USD/JPY down 0.22%, TradingView

Tokyo CPI Fuels Rate Hike Expectations

Friday saw the publication of a report surrounding Tokyo’s core inflation. According to the data, consumer prices jumped by 3.6% year-over-year this month, higher than the 3.5% rise that analysts had been expecting. The figure also tops April’s 3.4% and surpassed the inflation rates reported over the past two years. Tokyo’s inflation figures are considered a critical bellwether for prices across the country, and the latest data underscored Japan’s growing inflationary pressures.

BOJ Policy Outlook

BOJ Governor Kazuo Ueda addressed the bank’s outlook on Friday, citing several global risks behind the central bank’s recent downward revision to its inflation forecasts. Tariff-fueled uncertainty in trade policy, falling crude oil prices, and a drop in core-push inflation were all provided as reasoning.

Nonetheless, Ueda clarified that the BOJ’s upcoming decisions would not be impacted by the adjustments just yet. Instead, the bank remains focused on reaching an inflation rate of 2%. Ueda also reiterated that the BOJ is prepared to modify policy when deemed necessary.