Yen loses ground as Tokyo core CPI hits two-year high

The Japanese yen is in negative territory on Friday. In the European session, USD/JPY is trading at 143.45, up 0.59% on the day.

Tokyo Core CPI rises to 3.4%

Tokyo Core CPI rose to 3.4% y/y in April, its highest level since April 2023. This was sharply higher from the 2.4% gain in March and beat the market estimate of 3.2%. The spike was driven by a reduction in government energy subsidies as well as hikes in food prices. The price of rice, a staple food, has skyrocketed by 93% in the past year and grain prices have jumped 25% during that time. Tokyo CPI also surged to 3.5% from 2.9% in March.

BoJ in wait-and-see-mode

The Bank of Japan won't be able to ignore these hot inflation numbers and is expected to raise interest rates. The BoJ doesn't like to telegraph its intentions and the timeline of another hike is unclear. The central bank will likely hold rates at next week's meeting and the markets are looking at a rate hike in June or July.

US tariffs have complicated matters for the Bank of Japan and could delay the next rate hike. President Trump's trade policy has been erratic and it's still unclear whether he will reduce tariffs against China and other countries. BoJ policy makers are in a wait-and-see stance and hoping that US trade policy will be more clear in the coming months.

Markets bracing for weak US consumer sentiment, inflation expectations

The US wraps up the week with consumer sentiment and inflation expectations. The UoM consumer sentiment index slipped to 50.8 in April, down from 57.0 in March and the lowest level since June 2022. The final estimate is expected to confirm the weak initial release.

Consumers are expecting a jump in inflation, with the UoM inflation expectations hitting 6.7% in April in the initial release, up from 5.0% in March. The final estimate is expected to confirm the initial reading. This would mark the steepest inflation expectations since November 1981.

USD/JPY technical

• USD/JPY has pushed above resistance at 143.032 and is testing resistance at 143.42. Next, there is resistance at 144.01.
• 142.44 and 142.05 are the next support levels.