Japanese Yen weakens as softer Tokyo CPI and Iran tensions counter intervention warnings

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The USD/JPY pair is seen building on the previous day's late rebound from the vicinity of mid-155.00s, or over a two-month low, and gaining some positive traction during the Asian session on Friday.

USD/JPY attracts some buyers during the Asian session amid a combination of supporting factors.
Softer Tokyo CPI comes amid economic risks due to Middle East tensions and undermines the JPY.
The Fed’s hawkish tilt and the US-Iran stalemate revive USD demand, further supporting the pair.

The USD/JPY pair is seen building on the previous day's late rebound from the vicinity of mid-155.00s, or over a two-month low, and gaining some positive traction during the Asian session on Friday. The momentum lifts spot prices to the 157.25 region in the last hour and is sponsored by a combination of factors.

Following a brutal reaction to heightened verbal intervention by Japanese authorities, the Japanese Yen (JPY) meets with a fresh supply amid economic concerns stemming from Middle East tensions. Investors remain worried that Japan's economy will come under strain in the near future due to the continued disruption to energy supplies through the Strait of Hormuz. The concerns were further fueled by reports that the US is considering new military strikes on Iran amid stalled peace talks.

Meanwhile, consumer inflation in Tokyo – Japan's capital city – missed forecasts across all measures in April and remained below the Bank of Japan's (BoJ) 2% target for a third straight month. This gives the central bank more reasons to pause despite the June rate hike signals earlier this month, offsetting a jump in Japan's Manufacturing PMI to its highest since January 2022, and does little to impress the JPY bulls. Apart from this, a modest US Dollar (USD) uptick supports the USD/JPY pair.

The US Federal Reserve's (Fed) decision to hold its key policy rate unchanged at 3.50%-3.75% on Wednesday saw the highest number of dissents since 1992, with three policymakers voting against the accommodative tone in the statement. Furthermore, the Advance US GDP report indicated that the largest economy expanded by 2.0% annualized pace during the first quarter of 2026. This was higher than the 0.5% growth in the previous quarter, indicating continued economic resilience.

Adding to this, the US inflation accelerated in March due to the war-driven surge in Oil prices, bolstering expectations that the Fed could keep interest rates unchanged well into next year. This, along with persistent geopolitical uncertainties, assists the USD to rebound following the overnight slump to a one-and-a-half-week low, which turns out to be another factor lending support to the USD/JPY pair. Traders now look forward to the US ISM Manufacturing PMI for a fresh impetus.

Economic Indicator

Tokyo CPI ex Food, Energy (YoY)

The Tokyo Consumer Price Index (CPI), released by the Statistics Bureau of Japan on a monthly basis, measures the price fluctuation of goods and services purchased by households in the Tokyo region. The index is widely considered as a leading indicator of Japan’s overall CPI as it is published weeks before the nationwide reading. The gauge excluding food and energy is widely used to measure underlying inflation trends as these two components are more volatile. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.