Japanese Yen Pauses Near Monthly Lows Despite Strong CPI and Rising Geopolitical Risks

The Japanese Yen (JPY) showed limited strength on Friday despite a stronger-than-expected core inflation print and heightened Middle East tensions, as markets weigh Bank of Japan’s (BoJ) cautious stance and global tariff risks. Meanwhile, the USD/JPY pair pulled back from recent highs amid broader US Dollar softness.

🔍 Key Highlights:

✅ Japan’s core inflation rose to 3.7% in May, reinforcing BoJ rate hike expectations for 2026.
✅ Headline CPI remains above BoJ’s 2% target.
✅ USD weakens after Fed maintains a hawkish tone but hints at fewer rate cuts in 2025–2027.
✅ Geopolitical tensions between Iran and Israel support safe-haven demand for JPY.
✅ USD/JPY trades near 145.70 with bullish technical outlook intact.

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🇯🇵 Japan CPI Fuels Rate Hike Speculation

Japan’s National Core Consumer Price Index (CPI) climbed to 3.7% YoY in May, beating market expectations and marking the highest level since early 2023. The broader inflation rate held at 3.5%, while the core-core CPI—excluding both food and energy—rose from 3.0% to 3.3%, indicating sticky inflation.

Although these figures reinforce long-term tightening prospects, the BoJ remains cautious, signaling a slower reduction in its bond-buying program and holding policy steady at 0.5%. Governor Kazuo Ueda noted that rising food and oil prices—driven by the Israel-Iran conflict—pose risks to inflation expectations.

📊 Reuters Poll Insight:

• 38 out of 58 economists expect BoJ to maintain current rates in 2025.
• A 25-bps hike is anticipated by 40 of 51 economists in Q1 2026.

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💥 Geopolitical Risks Add to JPY Demand

Safe-haven flows into the Yen were also driven by escalating Middle East tensions. President Trump is reportedly considering military action against Iran, granting a two-week diplomatic window before any potential escalation. European foreign ministers are engaging with Tehran to ease tensions.

Market anxiety over US tariffs—including potential duties on the pharmaceutical sector—adds further pressure on global trade sentiment, which could indirectly support JPY demand as a defensive asset.

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🇺🇸 USD Remains Pressured Despite Hawkish Fed

The US Dollar remains under pressure after the Federal Reserve maintained its current interest rate but signaled two rate cuts in 2025 and just one in both 2026 and 2027. The Fed’s cautious approach, coupled with ongoing tariff uncertainty, weighed on USD/JPY.

Trump’s recent trade comments and proposed tariffs on Japanese vehicles have further clouded the outlook, limiting USD/JPY upside for now.

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📈 USD/JPY Technical Outlook – Bullish Above 145

The USD/JPY pair remains in an overall uptrend, having successfully closed above the 145.00 psychological level and monthly highs near 145.45. Indicators show growing bullish momentum, suggesting that dips could be buying opportunities.

🔹 Key Support Levels:

• 144.50 – 144.00 zone
• Break below 144.00 could shift bias to bearish

🔹 Key Resistance Levels:

• 145.75 (recent high)
• 146.00 (psychological round level)
• 146.25 – 146.30 (May 29 peak)
• 147.00 (100-day SMA)
• 148.00 – 148.65 (swing high)

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📌 Conclusion

The Japanese Yen’s outlook remains mixed as strong inflation data and geopolitical risk support the currency, but BoJ’s cautious tone and global trade worries cap gains. For USD/JPY traders, the pair remains bullish above 145.00, with the next resistance seen at 146.00 and beyond.

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