USD/JPY Holds Gains While BoJ Stays Cautious on Tightening
MarketPulse | May 26, 2025 05:02PM ET
The Japanese yen has edged lower on Monday. USD/JPY is trading at 142.76 in the North American session, up 0.15% on the day. The US dollar was broadly lower on Friday and declined 1% against the yen.
BoJ Core CPI Expected to Accelerate
On Friday, Japan's core CPI for April hit 3.5% y/y, up from 3.2% in March and above the market estimate of 3.4%. This marked the fastest annual pace since January 2023. The spike in inflation was driven by higher food prices.
Japan's inflation will remain in focus this week, with BoJ Core CPI and Services Producer Price Index on Tuesday and Tokyo Core CPI on Friday. BoJ Core CPI, one of the central bank's preferred inflation indicators, has held steady at 2.2% for the past three months but is expected to edge up to 2.3% in March.
What's Next for the BoJ?
Inflation has been moving higher and strong readings from this week's inflation reports would support the case for a rate hike from the Bank of Japan.
The central bank raised rates in January and has signaled its intent to continue raising rates but the turbulence and uncertainty triggered by the Trump tariffs has forced the BoJ to cut its growth forecasts and adopt a wait-and-see stance on monetary policy.
The BoJ views wage growth as a key driver of underlying inflation but wage growth has lagged behind inflation, resulting in weaker consumption than hoped.
Governor Kazuo Ueda has said that the uncertainty due to the tariffs has pushed back the timing of underlying inflation reaching the BoJ's 2% target. The BoJ isn't about to telegraph a date for a rate hike and the markets don't expect a move before October at the earliest.
USD/JPY Technical
- USD/JPY tested resistance at 143.07 earlier. Next, there is resistance at 143.72
- 141.93 and 141.28 are providing support
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