The Japanese yen regained ground on Thursday following a steep selloff a day earlier, with the USD/JPY pair down 0.67% at 142.44 in the European session.
The rebound comes amid signs of persistent inflationary pressures in Japan. The Corporate Services Price Index (CSPI) rose 3.1% in March, slightly easing from February’s upwardly revised 3.2% but beating market expectations of a 3.0% increase. The data underscores ongoing cost pressures in the service sector, a key metric watched by the Bank of Japan (BoJ).
Focus Turns to Tokyo Inflation Data
Investors are now turning their attention to Friday’s release of Tokyo Core Consumer Price Index (CPI), which is expected to accelerate sharply to 3.2% year-on-year in April, up from 2.4% in March. A stronger-than-expected print could bolster expectations that the BoJ may lean toward further tightening in the coming months. This follows a nationwide core CPI reading that also hit 3.2% in March, driven by rising food prices.
However, policy decisions remain clouded by geopolitical uncertainty. The BoJ has maintained its benchmark rate and is widely expected to hold steady at its next meeting on May 1, particularly as the central bank awaits clarity on potential U.S. trade tariffs, which could weigh on Japan’s export-driven economy.
Dollar Surges on Easing Tariff Rhetoric
The yen’s earlier slump was fueled by a broad rally in the U.S. dollar on Wednesday, after President Donald Trump said he planned to “substantially” reduce tariffs on China. The announcement was interpreted by markets as a de-escalation of trade tensions, boosting risk appetite and sending the dollar 1.3% higher against the yen.
Investor sentiment was further buoyed after Trump clarified he had no plans to replace Federal Reserve Chair Jerome Powell, easing concerns over political interference in U.S. monetary policy that had rattled financial markets earlier in the week.
USD/JPY Technical Outlook
The USD/JPY pair has broken below support at 142.82, with further downside support seen at 142.07. On the upside, resistance levels are established at 144.19 and 144.94.
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