USD/JPY weakens below 142.50 as Japanese CPI came in at 3.6% YoY in March
- USD/JPY loses ground in Friday’s early Asian session.
- Japanese CPI climbed 3.6% YoY in March; core CPI rose 3.2%.
- The US Initial Jobless Claims fell to the lowest level in two months.
The USD/JPY pair softens to near 142.25 in a thin trading volume session on Friday. The US Dollar (USD) edges lower against the Japanese Yen (JPY) amid concerns over the economic impact of tariffs.
Data released by the Japan Statistics Bureau on Friday showed that the National Consumer Price Index (CPI) rose by 3.6% YoY in March, compared to the previous reading of 3.7%. Meanwhile, National CPI ex Fresh food came in at 3.2% YoY in March versus 3.0% prior. The figure was in line with the market consensus.
Finally, CPI ex Fresh Food, Energy rose 2.9% YoY in March, compared to the previous reading of 2.6%. The Japanese Yen remains strong against the Greenback in an immediate reaction to the Japanese inflation data.
However, the upside for the JPY might be limited as the Bank of Japan (BoJ) officials signaled a pause in considering interest-rate hikes, stressing the need to monitor uncertainties heightened by US tariff measures. BoJ Governor Kazuo Ueda said on Thursday, “We will assess the economy and inflation carefully for an appropriate policy decision by being duly mindful of rising uncertainties stemming from US tariff measures and other issues.”
Fellow board member Junko Nakagawa echoed Ueda’s view in separate remarks, saying that it is necessary to monitor developments with high vigilance. Japan’s Finance Minister Katsunobu Kato is expected to meet separately with Treasury Secretary Scott Bessent to continue the negotiations initiated by Prime Minister Shigeru Ishiba's top tariff negotiator Ryosei Akazawa. Investors will keep an eye on developments in country-specific trade negotiations.
The US economic data Thursday were mixed. The US Initial Jobless Claims fell to the lowest level in two months, signaling a stable labor market. Additionally, the Philadelphia Fed Index declined, missing the estimations, a warning shot from manufacturing.
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.