USD/JPY is trading near 153.70 on Friday, extending its decline after briefly jumping above 154.50 following the latest US inflation data. The initial Dollar rally quickly faded as strong Yen demand pushed the pair back toward the lower end of its recent trading range. This follows a sharp decline earlier in the week from levels around the mid-155s.
US Consumer Price Index (CPI) inflation remained at 3.4% year-on-year in August, unchanged from July and matching market expectations, according to the Bureau of Labor Statistics. On a monthly basis, however, consumer prices increased 0.4%, accelerating significantly from the previous month’s 0.1% rise.
The core CPI measure, which excludes volatile food and energy prices, increased 0.3% month-on-month, exceeding economists’ 0.2% forecast. Nevertheless, annual core inflation eased to 2.4% from 2.5%, limiting the broader impact of the stronger monthly reading.
The hotter-than-expected monthly core figure initially provided support for the US Dollar, but the rebound against the Yen lacked follow-through. Selling pressure soon returned, highlighting the Yen’s strong momentum this week.
A major factor behind the Yen’s performance is growing expectations surrounding the Bank of Japan. Markets anticipate that the BoJ could raise its policy rate by 25 basis points to 1.25% next week. Such a move would push Japanese borrowing costs to their highest level in more than three decades.
The prospect of further Japanese monetary tightening, combined with fading support for the Dollar after the CPI release, is increasingly favoring the Yen. Other Yen crosses are also weakening, reinforcing the currency’s broad-based strength.
With USD/JPY remaining around the low-153 area, downside risks appear elevated unless the Dollar can regain sustained momentum.
Trade Idea
Consider selling USD/JPY near 154.00–154.30, targeting 152.80 initially, with a protective stop above 154.70 if Yen strength persists.