Tokyo’s headline CPI rose 1.6% year on year in February, up from 1.5% in January, according to the Statistics Bureau of Japan. Tokyo CPI excluding fresh food increased 1.8% year on year, versus 1.7% expected and 2.0% previously.
Tokyo CPI excluding fresh food and energy rose 1.8% year on year in February, down from 2.0% in the prior reading. Tokyo CPI is published ahead of the nationwide CPI and excludes fresh food due to weather-driven price swings.
Usd Jpy Reaction And Key Levels
After the data, USD/JPY was down 0.20% on the day at 156.13. Earlier reference levels included 156.82, 157.66 and 159.23 on the upside, with 155.35, the 100-day EMA at 154.45, and 152.64 on the downside.
The Bank of Japan targets inflation of around 2%. It used Quantitative and Qualitative Easing from 2013, added negative rates in 2016, controlled the 10-year yield, and lifted rates in March 2024.
In 2022 and 2023, policy differences with other central banks weighed on the yen, with a partial reversal in 2024. Inflation rose above 2% amid a weaker yen, higher global energy prices and prospects for wage growth.
We are looking back at the Tokyo CPI data from February 2025, which showed a headline inflation of 1.6%. This was seen at the time as a modest increase, but it marked a slow and steady climb. The context is different now, as nationwide inflation in January 2026 recently came in at a stronger 2.4%, exceeding market expectations.
BoJ Outlook And Yen Volatility
That trend of firming inflation through 2025 prompted the Bank of Japan to deliver a further interest rate hike to 0.25% late last year. This has fundamentally shifted our expectations for monetary policy going forward. The market is no longer just watching for signs of inflation, but actively pricing in the timing of the next BoJ rate increase.
A year ago, USD/JPY was trading above 156, but the narrowing interest rate gap has since pushed the pair down to around 148.50 today. This suggests that further yen strength is a real possibility, making long positions in USD/JPY much riskier. We see traders increasingly using options to protect against a sudden drop, buying puts on USD/JPY.
In the coming weeks, our focus is squarely on the preliminary results from the “shunto” spring wage negotiations. Early reports are suggesting wage growth could exceed 4.5%, a multi-decade high that would add significant pressure on the BoJ to act again soon. This is causing implied volatility in yen currency pairs to rise, indicating that traders should prepare for larger price swings.
