The Japanese Yen (JPY) continues to trade on the back foot during Friday’s Asian session. Modest US Dollar (USD) buying, combined with lingering yen weakness, keeps the USD/JPY pair supported near the 154.00 level. Softer Tokyo inflation data has cooled expectations for an early interest rate hike by the Bank of Japan (BoJ). At the same time, concerns over Japan’s fiscal position—amid Prime Minister Sanae Takaichi’s reflation-focused policies—and political uncertainty ahead of the February 8 snap election are weighing further on the JPY.
That said, speculation about potential coordinated intervention by US and Japanese authorities to support the yen may deter traders from taking aggressive bearish positions. In addition, global trade tensions sparked by US President Donald Trump’s tariff threats, along with broader geopolitical risks, could help limit downside for the safe-haven JPY. Meanwhile, the USD lacks strong upside momentum due to lingering concerns over Federal Reserve independence and expectations of lower US interest rates, warranting caution before betting on sustained USD/JPY gains.
Weak Tokyo CPI dampens BoJ rate hike expectations, keeping the Japanese Yen subdued
Official data released earlier on Friday showed that Tokyo’s headline Consumer Price Index (CPI) slowed to 1.5% in January from 2.0% previously, marking its lowest level since February 2022.
Core CPI, which excludes fresh food prices, also eased to 2.0% from 2.3% in December. Additionally, the index excluding both fresh food and energy slipped to 2.4% from 2.6% in the prior month.
These figures suggest cooling demand-driven inflation pressures and reduce the urgency for the BoJ to tighten monetary policy further, following its December rate hike that lifted the benchmark rate to a 30-year high of 0.75%.
Meanwhile, Prime Minister Sanae Takaichi has centered her snap election campaign on expanded fiscal stimulus, including a pledge to suspend consumption taxes on food—raising fresh concerns over Japan’s long-term fiscal sustainability.
Speculation surrounding a rare rate check by the New York Federal Reserve last Friday, following a similar move by Japan’s Ministry of Finance, has fueled talk of possible joint US-Japan intervention to curb excessive yen weakness.
On the geopolitical front, President Trump announced plans to decertify all Canada-manufactured aircraft and threatened to impose 50% tariffs unless US-made Gulfstream jets receive Canadian certification. This development marks a renewed escalation in US-Canada trade tensions.
Broader geopolitical risks—such as rising US-Iran tensions and the ongoing Russia-Ukraine conflict—could also help limit further losses in the yen. The US has continued deploying warships and fighter jets across the Middle East, with Secretary of War Pete Hegseth stating that the country stands ready to act decisively under President Trump’s directives.
Russia has once again invited Ukrainian President Volodymyr Zelensky to Moscow for peace talks, though significant differences between the two sides continue to hinder progress.
Meanwhile, the US Dollar finds modest support amid speculation that Kevin Warsh could be named the next Federal Reserve Chair. President Trump is expected to announce his pick on Friday morning, providing additional short-term direction for USD/JPY.
Looking ahead, traders will closely monitor the release of the US Producer Price Index (PPI) and upcoming Fed commentary, which could influence USD demand and shape USD/JPY price action heading into the weekend.
