Japanese inflation falls, yen extends losses

[Redator]

The Japanese yen continues to lose ground on Friday. In the North American session, USD/JPY is trading at 148.68. Earlier, USD/JPY hit 148.77, its highest level since August 1.

Japan's core CPI falls to 3.1%

Japan's core CPI, which excludes fresh food, dropped to 3.1% y/y in July, down from 3.3% and just above the market estimate of 3.0%. Headline CPI also declined to 3.1% from 3.3%, as rice inflation, which has skyrocketed, eased slightly.

Headline inflation has been above the Bank of Japan's 2% inflation target for 40 consecutive months but the central bank remains hesitant to raise rates, arguing that it needs more evidence that domestic demand and wages will keep underlying inflation sustainable at around 2%.

The BoJ meets next on September 19 and the markets widely expect another hold. The BoJ has a habit of catching the markets off guard and a rate hike is certainly a possibiity in September or October. The BoJ upgraded its inflation forecast for fiscal year 2025 at the July meeting from 2.2% to 2.7%, which supports the case for a rate hike in the coming months.

Powell to speak at Jackson Hole

Central bankers are meeting up in Jackson Hole, Wyoming. The star of the show will be Federal Reserve Chair Powell, who will deliver a speech later today. The markets have priced in a rate cut at next month's Fed meeting and are hoping for some confirmation from Powell.

The Fed is caught between a rock and a hard place as it charts a rate path. Inflation is still high, which would support maintaining rates, but the labor market is deteriorating, which supports the case to lower rates and boost economic activity.

Should the Fed's primary focus be inflation or employment? There is a split among members, which was reflected in the rare split vote at the July meeting. The majority of the FOMC members, which voted to hold rates, judged the upside risk of inflation to be the primary concern, while the two members who voted to lower rates were most concerned about softening employment. The Fed meets next month and is widely expected to deliver its first rate cut since December 2024.

USD/JPY Technical

• USD/JPY has pushed above resistance at 148.44 and is testing 148.61
• 148.24 and 148.07 are the next support levels

USD/JPY 1-Day Chart, Aug. 22, 2025

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