USD/JPY weakens below 147.00 after Japan’s Tokyo CPI inflation data

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USD/JPY softens to around 146.85 in Friday’s early Asian session.
Japan’s Tokyo August Core CPI rose 2.5% YoY in August, matching the forecast.
The US economy grew at a 3.3% annualized rate in the second quarter of 2025.

The USD/JPY pair loses ground to near 146.85 during the early Asian session on Friday. The Japanese Yen (JPY) edges higher against the US Dollar (USD) after the release of Japan’s Tokyo August Consumer Price Index report. The attention will shift to the US July Personal Consumption Expenditures (PCE) Price Index report, which is due later on Friday.

Data released by the Statistics Bureau of Japan on Friday showed that the headline Tokyo CPI rose 2.6% YoY in August versus 2.9% prior. Meanwhile, Tokyo's core CPI inflation eased to 2.5% YoY in August from 2.9% in July, matching market forecasts.

As of August 29, 2025, Tokyo's August core consumer price index (CPI) has eased to 2.5% year-on-year, matching market forecasts. The Tokyo CPI ex Fresh Food and Energy, which is closely watched by the Bank of Japan (BoJ), rose 3.0% YoY in August, compared to the previous reading of 3.1%.

These Tokyo inflation reports keep alive market expectations of a resumption in interest rate hikes, supporting the Japanese Yen. Nearly two-thirds of economists polled by Reuters in August anticipate the BoJ to raise its key interest rate by at least 25 basis points (bps) again later this year, up from just over half a month ago.

On the other hand, the stronger-than-expected US Gross Domestic Product (GDP) for the second quarter (Q2) might lift the USD. The US economy grew at a 3.3% annualized rate in Q2, a faster pace than initially estimated, driven by a pickup in business investment and an outsize boost from trade.

Traders will take more cues from the US PCE inflation report on Friday, as it will be the final inflation data before the Federal Reserve's (Fed) September meeting. The headline PCE is expected to show an increase of 2.6% YoY in July, while the core PCE is estimated to show a rise of 2.9% during the same period.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.