• USD/JPY trades slightly lower around 156.00 as the US Dollar consolidates after the PPI release.
• Producer price inflation surprises to the upside, reducing bets on a June Fed rate cut.
• The Japanese Yen remains supported by expectations of gradual tightening from the Bank of Japan.

USD/JPY hovers around 156.00 on Friday at the time of writing, down 0.08% on the day, despite the release of stronger-than-expected US Producer Price Index (PPI) data. The move reflects a measured market reaction, with the US Dollar (USD) struggling to extend its rebound after the inflation figures.

Data released by the Bureau of Labor Statistics (BLS) showed that the PPI rose 0.5% MoM in January, above the 0.3% expected. On a yearly basis, the index increased 2.9%, also beating forecasts. Core PPI, which excludes food and energy, jumped 0.8% MoM, above consensus, and accelerated to 3.6% YoY. These figures confirm that upstream inflationary pressures remain persistent.

This trend reinforces the cautious stance of the Federal Reserve (Fed), which wants clearer evidence that inflation is moving sustainably back toward its 2% target before considering further easing. According to the CME FedWatch tool, the chance of a rate cut in June has now fallen below 50%, while markets increasingly look to July for a potential move, with around 50 basis points of easing priced in by year-end.

In theory, the scaling back of rate cut expectations supports the US Dollar. However, the upside impact remains limited by structural headwinds, including uncertainty surrounding US trade policy and concerns about central bank independence. In addition, the recent implementation of a 10% global tariff has revived fears of a slowdown in global growth.

On the Japanese side, Tokyo inflation showed a slight moderation but remained elevated by historical standards. Tokyo’s Consumer Price Index (CPI) rose 1.6% YoY in February, while the gauge excluding fresh food increased 1.8%, slipping below the Bank of Japan (BoJ) 2% target for the first time since 2024. Despite this moderation, BoJ Governor Kazuo Ueda reiterated that interest rates will continue to rise if economic and inflation projections materialize. Board member Hajime Takata also stressed that tightening should proceed gradually.

These remarks sustain expectations of a gradual normalization of Japanese monetary policy, supporting the Japanese Yen (JPY) and limiting USD/JPY’s upside potential in the near term.