USD/JPY Slips to 145.17 as Japan's Core Inflation Surges

The Japanese yen gained modest ground against the U.S. dollar on Friday, as fresh inflation data revealed Japan’s highest core price growth in over two years. The USD/JPY pair slipped around 0.2% to 145.17, reflecting increased speculation about the potential for monetary tightening by the Bank of Japan (BoJ)—though market expectations remain cautious.

Inflation Spike Pressures BoJ Policy Outlook

Japan’s core Consumer Price Index (CPI), which excludes fresh food but includes energy, rose sharply in May, marking the highest year-on-year increase since 2022. The data added to a growing chorus of calls for the BoJ to reconsider its ultra-loose monetary stance. While the central bank has gradually signaled a shift toward normalization, it has thus far refrained from raising interest rates aggressively.

The latest inflation figures have complicated that stance. With consumer prices accelerating and global inflationary pressures lingering, investors are questioning whether the BoJ can afford to delay action much longer. Nevertheless, futures markets still price in only a 50% probability of a rate hike before December, signaling skepticism that the central bank will move swiftly.

Yen Recovers Slightly, but Trend Remains Fragile

The yen’s modest rebound pushed USD/JPY back below the 145.20 level, breaking a short-term consolidation range that had been building for several sessions. The pair had recently breached resistance between 145.00 and 145.50, forming higher lows and suggesting an underlying bullish bias.

Friday’s dip, however, suggests the momentum is stalling. Technically, the upward trend remains intact, but indicators such as RSI and MACD are flattening—signaling the possibility of a near-term pullback or consolidation phase. A decisive break below 145.00 could prompt deeper losses, with key support around 144.50 and 144.00 in focus.

Market Reaction: Cautious Optimism, Light Volumes

Trading volume picked up slightly during the initial break above 145.00 earlier this week, confirming some bullish conviction behind the move. However, the latest red candle printed on the daily chart—coupled with elevated volume—hints at growing uncertainty and potential exhaustion among buyers.

Investors appear to be treading cautiously, unsure whether the inflation print will be enough to provoke meaningful policy change from the BoJ. While the yen’s recovery is notable, it remains muted compared to what might be expected given the inflation surprise.

Broader Context: Geopolitical Tensions Cloud FX Outlook

Adding to the uncertainty is the geopolitical backdrop. Tensions in the Middle East—particularly between Israel and Iran—have put global markets on edge, encouraging safe-haven flows. Typically, the yen benefits in risk-off environments, but its role as a safe haven has been less pronounced in recent months due to Japan’s negative real interest rates.

In contrast, the U.S. dollar continues to attract flight-to-safety flows, complicating the picture for USD/JPY. As a result, movements in the pair are increasingly driven by shifts in central bank policy expectations rather than pure risk sentiment.

What Comes Next: Watching the BoJ and Global Headlines

Traders will be closely monitoring comments from BoJ officials in the coming days. Any hint of hawkishness—or acknowledgement of the inflation spike—could spark further yen strength. Conversely, if the central bank maintains a dovish tone, USD/JPY may resume its upward path.

Other factors likely to influence direction include:

U.S. economic data releases, particularly inflation and employment figures.

Federal Reserve commentary, especially regarding the timing of potential rate cuts.

Geopolitical developments, which could reignite volatility and shift demand for safe-haven currencies.

Technical Outlook: Key Levels to Watch

Immediate resistance: 145.50

Key support: 145.00, followed by 144.50 and 144.00

Upside targets: If the pair rebounds, a retest of the 146.00–146.50 zone is likely

Momentum indicators suggest the rally is losing steam, but the broader structure remains intact unless USD/JPY closes decisively below 145.00.

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