The Japanese Yen (JPY) has maintained its strong position against the US Dollar (USD) for a third consecutive day this Friday. This development comes as hot Tokyo Consumer Price Index (CPI) data fuels expectations for further rate hikes by the Bank of Japan (BoJ). Meanwhile, the USD/JPY pair struggles, hovering near monthly lows around the 154.00 mark. Tariff threats from former US President Donald Trump have compounded the pressure on the pair, capping potential gains for the Yen while providing some support to the USD/JPY pair.
Market participants closely monitor the USD/JPY pair, with the next significant hurdle pegged near the 156.75 region. A sustained strength in the pair might trigger an intraday short-covering move towards the 155.40-155.45 zone. This region serves as a waypoint to the 156.00 round figure and further toward the weekly top, around the 156.25 area. Notably, the 156.25 level aligns with the 100-day Simple Moving Average (SMA), potentially offering substantial support to spot prices.
The Yen has attracted buyers throughout the week, nearing a one-month high against its American counterpart. The USD/JPY pair's struggle has been exacerbated by increasing bets on further BoJ rate hikes, buoyed by robust Tokyo CPI data. The Statistics Bureau of Japan reports that headline Tokyo CPI climbed from 3.0% to 3.4% year-on-year in January, marking the highest level since April 2023. This acceleration in inflation bolsters the case for additional rate increases by the BoJ.
BoJ Deputy Governor Ryozo Himino emphasized in recent statements that real interest rates remain negative. He indicated that the central bank would contemplate more rate hikes if economic and price conditions align with expectations. This stance underpins the continued strength of the Yen as investors anticipate monetary tightening by Japan's central bank.
In parallel, renewed selling pressure on the US Dollar and tariff threats from Donald Trump have helped keep gold prices afloat ahead of the US core Personal Consumption Expenditures Price Index release. Concerns over Trump's tariff plans have further undermined the USD/JPY pair, adding to its challenges.
Additionally, increased expectations for a February interest rate hike by the Reserve Bank of Australia (RBA) and ongoing economic concerns in China have weighed on the USD/JPY pair, contributing to its recent declines.
The Tokyo CPI, a crucial indicator released monthly by Japan's Statistics Bureau, measures price fluctuations of goods and services purchased by households in Tokyo. The recent acceleration in CPI figures underscores Japan's inflationary pressures, prompting market speculation about BoJ's potential policy adjustments.
Despite these dynamics, the Yen's strength remains anchored by expectations of further BoJ rate hikes. Investors are keenly attuned to any signals from Japan's central bank that could influence future monetary policy decisions.