The Japanese yen weakened against the US dollar on Friday, with USD/JPY climbing 0.7% as Tokyo inflation data surged while trade tensions with the United States continued.
Inflation Surge Raises Rate Expectations
Tokyo’s core inflation jumped to 3.4% year-on-year in April from 2.4% in March, exceeding forecasts of 3.2%. This marked a two-year high, pushing well above the BOJ’s 2% target. Despite these pressures, the Bank of Japan is expected to hold rates steady at its May 1 meeting due to trade uncertainty, though analysts now see increased possibility of a rate hike by June or July.
Trade Tensions Impact Policy Outlook
President Trump’s recent 25% tariff on Japanese auto imports and temporary 10% tariff on all Japanese goods have complicated the BOJ’s decision-making. In response, Prime Minister Ishiba announced an emergency economic package including corporate financing support, gasoline subsidies, and utility bill relief.
Currency Diplomacy Continues
Finance Minister Kato met with US Treasury Secretary Bessent in Washington, agreeing to “constructive” currency dialogue while maintaining that exchange rates should be market-determined. Japan’s top trade negotiator will visit Washington next week for further talks, with reports suggesting Japan may increase US soybean imports to address trade imbalances.
The yen has already strengthened about 9% against the dollar since January, with market participants watching closely for signals from both trade and monetary policy fronts.
USDJPY (D1)
USD/JPY is approaching the 23.6% Fibonacci retracement level. Bulls will aim to test the 30-day SMA, with a potential target at the 38.2% retracement level. Bears, on the other hand, will look to push the price below recent lows at 139. The RSI is forming a bullish divergence with higher highs, while the MACD is widening following a bullish crossover.
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