Insights 
VT 
Key Points
- USDJPY slipped past 155 as the yen positioned for weekly gains after the BOJ lifted rates to 0.75%.
- Tokyo inflation eased to 2% in December, while industrial output fell 2.1% year on year.
The Japanese yen firmed past 155 per dollar on Friday, setting itself up for solid weekly gains. Traders continued to focus on the Bank of Japan’s tightening trajectory rather than near-term softness in inflation data.
USDJPY traded around 156.32, but the broader tone reflected growing confidence that policy normalisation remains intact.
The move came even as Tokyo’s annual inflation rate eased to 2% in December, marking a more than one-year low. The moderation reflected softer food and energy prices, but it did little to alter expectations for further rate increases.
Tokyo Inflation Still Guides Policy Outlook
Tokyo inflation is widely seen as a leading indicator for nationwide price trends and carries weight with policymakers. While the easing to 2% suggested some cooling, inflation remains aligned with the BOJ’s target rather than below it.
Markets appear to view the latest reading as a pause rather than a reversal. Traders continue to expect that the BOJ will prioritise the broader inflation trend over month-to-month fluctuations, especially after years of undershooting its target.
BOJ Rate Hike Anchors Hawkish Expectations
Last week, the Bank of Japan raised its policy rate to 0.75%, the highest level since 1995.
Governor Kazuo Ueda reinforced expectations of further tightening, saying the central bank would raise rates again if inflation trends persist.
He did not specify the pace or limits of future hikes, keeping markets alert to incoming data.
This stance has supported the yen, even as other major central banks lean towards easing. The policy gap remains a key driver of currency flows into the yen, particularly during periods of reduced global risk appetite.
Mixed Economic Data Limits Upside Momentum
Japan’s latest activity data painted a mixed picture. Industrial production fell 2.1% year on year in November, highlighting ongoing weakness in the manufacturing sector.
In contrast, retail sales rose 1%, suggesting household spending has stabilised rather than accelerated.
The unemployment rate held steady at 2.6% in November, pointing to continued tightness in the labour market. This stability supports wage growth expectations, which remain central to the BOJ’s inflation outlook.
Technical Analysis
USDJPY remains elevated near recent highs but continues to struggle to break past the 157.88 resistance area.
Price action is consolidating just below the peak, with the 5, 10, and 30-day moving averages flattening—hinting at a potential pause or minor correction.
MACD momentum has slowed, with the histogram hovering around the zero line. The earlier bullish crossover has faded slightly, and unless fresh drivers emerge, the pair may see more range-bound price action in the short term.
Cautious Outlook as Policy Divergence Drives Flows
The yen may retain support if markets continue to price further BOJ hikes despite softer headline inflation. However, weak industrial data could limit aggressive appreciation.
In the near term, USDJPY may trade in a broad 155.00 to 158.00 range, with direction shaped by inflation trends and BOJ communication rather than single data releases.
