Market Update on USD/JPY and Japanese Economic Indicators

During early trading on Friday in Asia, the USD/JPY exchange rate remained steady around 163.90. However, the Japanese yen is currently near its lowest points against the US dollar in decades. Traders are awaiting the preliminary data for the US S&P Global Purchasing Managers’ Index (PMI), set to be released later today.

According to data from Japan’s Statistics Bureau, the national Consumer Price Index (CPI) inflation rate for June increased to 1.7% year-on-year, up from 1.5% in May. Additionally, the core CPI for June stood at 1.6%, a slight rise from 1.4% previously. This aligns with market expectations and marks the first increase in core inflation since March.

The so-called “core-core” inflation, which excludes fresh food and energy prices, was at 1.7% year-on-year in June, down from 1.8% a year earlier. This is the lowest figure recorded since August 2022.

This inflation observation comes just days before the Bank of Japan’s (BOJ) upcoming policy meeting, where it’s largely anticipated that interest rates will remain unchanged. So far, the inflation report has had minimal impact on the yen, as traders remain cautious about the possibility of intervention by Japanese authorities.

Finance Minister Satsuki Katayama issued a warning to the markets on Wednesday, stating that authorities are ready to take “appropriate and bold action.” Katayama mentioned that Japan’s stance on intervention remains consistent, and action will be taken if deemed necessary.

Increasing tensions in the Middle East could potentially lead to an appreciation of the US dollar against the yen in the short term. A report from Reuters indicated that US President Donald Trump announced intentions to hold Iran accountable for its actions related to the Houthis, cautioning that both Iran and its allies could soon face “significant military retribution.”