Japanese Yen weakens despite CPI rise as focus remains on BoJ policy

The Japanese Yen (JPY) attracts fresh sellers during the Asian session on Friday and slides back closer to the weekly low, touched against its American counterpart the previous day. The downtick defies a rise in Japan’s National Consumer Price Index (CPI), which reaffirmed market bets for an imminent interest rate hike by the Bank of Japan (BoJ) later today. The JPY bulls, however, remain on the sidelines and await more cues about the BoJ’s future policy path going into 2026, suggesting that the focus will remain on Governor Kazuo Ueda’s post-meeting press conference.

Heading into the key central bank event risk, Japan’s fiscal woes and a positive risk tone, bolstered by the prospects for lower US interest rates, seem to undermine the safe-haven JPY. The US Dollar (USD), on the other hand, remains close to the weekly high as traders look past softer US consumer inflation figures released on Thursday. This is seen as another factor acting as a tailwind for the USD/JPY pair. Meanwhile, bets for more interest rate cuts by the US Federal Reserve (Fed) might keep a lid on any meaningful upside for the USD and the USD/JPY pair amid hawkish BoJ expectations.

Japanese Yen bulls remain on the sidelines after National CPI, as focus remains on BoJ decision

• Japan’s Statistics Bureau reported earlier this Friday that the National Consumer Price Index (CPI) rose 2.9% YoY in November, down slightly from 3.0% in the previous month. Further details revealed that a core gauge, which excludes volatile fresh food prices, held steady at 3%, as expected.
• Meanwhile, the core CPI that excludes both fresh food and energy prices, which is closely watched by the BoJ as a measure of underlying inflation, eased from 3.1% to 3% in November. Nevertheless, inflation in Japan remained sticky and well above the central bank’s 2% annual target.
• The JPY bulls, however, seem reluctant and opt to wait for cues about the BoJ’s appetite for further tightening before placing fresh bets. Hence, the focus will remain glued to BoJ Governor Kazuo Ueda’s comments, which, in turn, should play a key role in influencing the JPY price dynamics.
• The recent sharp rise in Japanese government bonds – led by public debt of around 250% of GDP, which is the world’s highest – continues to fuel concerns about Japan’s worsening fiscal health amid Prime Minister Sanae Takaichi’s massive spending plan. This could cap any JPY recovery move.
• From the US, the Bureau of Labor Statistics reported on Thursday that the Consumer Price Index (CPI) rose by the 2.7% YoY rate in November against 3.1% expected. Moreover, the core CPI, which excludes volatile food and energy prices, missed estimates and climbed 2.6% last month.
• The data indicated that inflationary pressures may be cooling enough for the US Federal Reserve to ease further. In fact, traders expect a 63 bps of rate cuts by the Fed in 2026. US President Donald Trump said the next Fed chair will be someone who backs sharply lower interest rates.
• This marks a significant divergence compared to hawkish BoJ bets and should support the lower-yielding JPY. The initial market reaction, however, turns out to be short-lived, which keeps the US Dollar close to the weekly high touched on Thursday and supports the USD/JPY pair.
• Investors look to the US economic docket – featuring Existing Home Sales and the revised University of Michigan Consumer Sentiment Index – for some impetus. Nevertheless, the USD/JPY pair seems poised to end nearly unchanged for the week, warranting caution for aggressive traders.

USD/JPY needs to surpass the 156.00 mark to back the case for a further appreciating move

Against the backdrop of this week’s breakout through the 100-hour Simple Moving Average (SMA), a sustained strength above the 156.00 mark will be seen as a key trigger for the USD/JPY bulls. Given that oscillators on hourly and daily charts are holding in positive territory, spot prices might then aim to test the monthly high, around the 157.00 neighborhood, touched last week, with some intermediate hurdle near the 156.55-156.60 region.

On the flip side, the 100-hour SMA resistance-turned-support, currently around the 155.30 zone, could protect the immediate downside ahead of the 155.00 psychological mark. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair to the 154.35-154.30 region, or the monthly low touched on December 5. This is followed by the 154.00 mark, which, if broken, might shift the bias in favor of bearish traders.