The USD/JPY pair lost some momentum during the early Asian session on Friday, dipping to around 157.75. The Japanese Yen (JPY) gained traction following the release of Tokyo Consumer Price Index (CPI) inflation data, although trading volumes remained thin ahead of the upcoming New Year holiday.
Tokyo CPI Data Suggests Possible BoJ Action
The Statistics Bureau of Japan reported on Friday that Tokyo’s headline CPI inflation rose to 3.0% year-on-year (YoY) in December, up from 2.6% in November. The Tokyo CPI excluding Fresh Food and Energy climbed to 2.4% YoY in December, compared to 2.2% in the previous month. Meanwhile, the Tokyo CPI excluding Fresh Food increased by 2.4% YoY, slightly below the expected 2.5%, but still higher than November’s 2.2% rise. This data suggests that inflationary pressures may keep the Bank of Japan (BoJ) on track for an interest rate hike in January.
BoJ’s Inflation Target in Focus
BoJ Governor Kazuo Ueda stated last week that the central bank expects Japan’s economy to approach its 2% inflation target more sustainably in 2024. Ueda emphasized that the timing and pace of monetary policy adjustments will depend on developments in economic activity, inflation, and financial conditions.
US Federal Reserve’s Rate Outlook Supports USD
On the other side of the equation, the US Dollar (USD) could receive support in the near term, driven by the expectation of fewer rate cuts by the US Federal Reserve (Fed). In its December meeting, the Fed reduced interest rates by a quarter point and adjusted its 2025 rate cut projection to only two cuts, down from the previous expectation of four. This shift in the Fed’s outlook could bolster the Greenback against its peers in the coming months.
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