Tokyo CPI Data Looms, USD/JPY Tests Critical 150 Threshold. 

Source : https://hellotokyotours.com/blog/tokyo-guide-nihonbashi-bank-of-japan

Global currency markets are turning their attention to Japan as investors prepare for the release of the Tokyo Consumer Price Index (CPI) for September. The data, due on Friday at 23:30 GMT, is more than just another economic indicator; it’s widely seen as a leading gauge of nationwide inflation. Because it is released weeks before Japan’s nationwide CPI, traders often use the Tokyo CPI as an early signal for how inflation pressures are shaping up across the world’s third-largest economy.

Why Tokyo CPI Matters

The Tokyo CPI tracks price changes for a basket of goods and services consumed by households in the Tokyo metropolitan area. Importantly, it excludes fresh food prices, which can swing sharply due to seasonal or weather-related factors, making the data more reliable for identifying broader inflation trends.

In August, the headline Tokyo CPI rose 2.6% year-on-year, slowing from 2.9% the previous month. Meanwhile, the Tokyo CPI excluding fresh food and energy—a measure often referred to as “core-core” inflation—registered at 3.0% YoY, just a touch lower than the prior 3.1%. Despite this slight moderation, inflation remains above the Bank of Japan’s (BoJ) longstanding target of 2%.

For September, analysts expect the core Tokyo CPI (excluding fresh food) to climb back to 2.8% YoY, compared with 2.5% in the prior month. A stronger-than-expected result would reinforce the view that inflation in Japan is still sticky, raising questions about how long the BoJ can continue to maintain its ultra-loose monetary stance.

The USD/JPY Connection

Heading into the data release, USD/JPY is trading on a positive footing, with the pair climbing as the US Dollar gains momentum on upbeat economic releases. Mixed signals from Federal Reserve officials have added uncertainty about the Fed’s future path, but the Dollar has remained resilient, keeping upward pressure on the pair.

The reaction to Tokyo CPI will likely be immediate. If inflation comes in hotter than forecasts, the Japanese Yen (JPY) could strengthen, potentially pushing USD/JPY lower. The 150.00 psychological level stands as the first major upside barrier for the Yen. Should the momentum build, further resistance lies at 150.84, the high from July 31, and 151.21, the peak from March 28.

On the flip side, if Tokyo CPI disappoints, the Yen could weaken further, giving USD/JPY room to climb. Key downside supports include 149.02 (the July 15 high), followed by 147.52 (the September 24 low), and 146.76 (the August 29 low). These levels will be closely monitored by traders looking to gauge potential corrections.

Broader Implications

The stakes for Japan are significant. After decades battling deflationary pressures, the country has finally seen inflation settle above 2% for more than a year. This shift has been partially driven by higher energy and import costs, but also by improving wage growth and stronger domestic demand. Still, policymakers at the BoJ remain cautious, arguing that they need to see consistent demand-driven inflation before altering their accommodative policy stance.

For currency markets, the Tokyo CPI is not just about Japan’s inflation trajectory—it’s also about the divergence between monetary policies in Japan and the United States. While the Federal Reserve has maintained a hawkish tilt to combat inflation, the BoJ has been reluctant to follow suit. This gap has been a major driver behind USD/JPY’s climb to multi-decade highs.

Friday’s Tokyo CPI could therefore serve as a catalyst. A strong print may encourage speculation that the BoJ will have to shift sooner than expected, lending strength to the Yen. Conversely, a weak reading would affirm the BoJ’s dovish bias, potentially propelling USD/JPY beyond the key 150 mark.

For now, markets are bracing for volatility. With USD/JPY already flirting with critical resistance levels, the Tokyo CPI release could provide the spark that sets the next big move in motion.

? Source: FXStreet