Japan's inflation rate expected to ease, yen dips

[Ben Graham]

The Japanese yen is slightly lower on Thursday. In the European session, USD/JPY is trading at 147.87, up 0.39% on the day.

Japan's inflation expected to continue slowing

Japan releases the July inflation report on Friday. The markets will be especially interested in the core rate, which is expected to ease to 3.0% y/y, from 3.3% in June. Core CPI includes energy but excludes fresh food

Core CPI has remained above the Bank of Japan's 2% target for over three years but the central bank has been slow to raise interest rates. BoJ Governor Ueda has said that the Bank will not raise rates until underlying inflation, which is generated by domestic demand and wages, is sustainably at 2%.

The BoJ raised rates to 0.5% in January but took its foot off the rate-hike pedal when Donald Trump became President and imposed a hard-hitting tariff policy which shook up the financial markets. Now that the US and Japan have reached a trade agreement and greatly reduced the uncertainty over tariffs, a major obstacle to raising rates has been removed.

Fed minutes point to dissension

The Federal Reserve released the minutes of the July meeting on Wednesday. The Fed's decision at the meeting to maintain rates was widely expected but the meeting made headlines when two FOMC members went against the majority and voted for a rate cut. This was the first time in over 30 years that more than one member voted against a rate decision.

The minutes reflected this dissension, noting the differing views on the Fed's dual mandate of inflation and employment. The economy faces an upside risk to inflation and a downside risk to employment, complicating rate decisions. At the meeting, the majority judged higher inflation as the greater risk while the minority believed that the deterioration in the labour market was the greater risk.

The Fed is widely expected to lower rates in September, after holding rates since December 2024.

USD/JPY

• USD/JPY has pushed above resistance at 147.33 and is testing 147.79 Above, there is resistance at 148.28
• 146.84 and 146.38 are providing support

USDJPY 1-Day Chart, Aug. 21, 2025

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