Japanese Yen Weakens on Softer Tokyo Inflation and Fiscal/Political Headwinds

The Japanese Yen (JPY) continues to weaken in the Asian session on Friday, driven by softer-than-expected Tokyo CPI data for January, which showed headline inflation dropping to 1.5% year-on-year (from 2.0% previously) and core measures easing to 2.0% and 2.4%, tempering market expectations for a swift follow-up rate hike by the Bank of Japan after its December increase to 0.75%. This disinflationary signal, combined with fiscal sustainability concerns stemming from Prime Minister Sanae Takaichi's reflationary stimulus pledges—including suspending consumption tax on food—and political uncertainty ahead of the February 8 snap election, adds pressure on the JPY. Despite fears of potential US-Japan intervention to support the yen, safe-haven demand amid ongoing geopolitical tensions (such as US-Iran escalations, Russia-Ukraine stalemate, and US-Canada trade frictions under President Trump) helps cap sharper losses, while USD/JPY edges toward the 154.00 level near the 100-day SMA, supported modestly by USD strength on speculation around the next Fed Chair pick.

The Japan stock market has finished higher in consecutive trading days, collecting almost 475 points or 0.8 percent along the way. Now at a fresh record closing high, the Nikkei 225 sits just above the 53,350-point plateau and it may run out of steam on Thursday.