USD/JPY Slides as Tokyo CPI Data Boosts Yen

The USD/JPY pair has lost momentum, dipping to around 157.75 during the early Asian session on Friday. The Japanese Yen (JPY) gained ground following the release of Tokyo's Consumer Price Index (CPI) inflation data. Market activity is expected to remain subdued ahead of the New Year holiday next week.

Japan's Tokyo CPI for December showed a 3.0% YoY increase, up from 2.6% in November, signaling rising inflationary pressures. Additionally, the Tokyo CPI excluding Fresh Food & Energy rose to 2.4% YoY, slightly above the previous 2.2%. While the Tokyo CPI excluding Fresh Food was 2.4% YoY, it missed expectations of 2.5%, although it was still a notable increase from 2.2% in November. These inflation figures strengthen the case for a potential interest rate hike by the Bank of Japan (BoJ) in January.

BoJ Governor Kazuo Ueda recently reiterated that the Japanese economy is on track to meet the BoJ's 2% inflation target next year, with the central bank expected to adjust its monetary policy depending on economic conditions, prices, and financial stability.

On the other hand, the US Dollar (USD) could see support in the near term, as market expectations shift toward fewer rate cuts by the US Federal Reserve (Fed). After the Fed's December meeting, which saw a quarter-point rate cut, expectations of only two rate cuts in 2025 (down from an original forecast of four) have strengthened the USD outlook.

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