Japanese Yen strengthens as Tokyo core CPI inflatin bolsters BoJ rate hike chance

The USD/JPY pair fell to approximately 159.30 during the beginning of the Asian session on Friday. The Japanese Yen strengthened against the US Dollar as data from Japan's Tokyo Consumer Price Index (CPI) bolstered the argument for a September Bank of Japan (BoJ) interest rate hike. Attention was focused on a speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium later on Friday.

Japan's Statistics Bureau released data on Friday showing that the headline Tokyo CPI increased 1.9% year-over-year in August, compared to 1.8% in July. Meanwhile, core CPI inflation rose to 1.8% year-over-year in August from 1.7% in July (revised from 1.9%). This figure exceeded the market's consensus of 1.7%. Furthermore, CPI excluding food and energy, which the BoJ closely monitors as a better indicator of inflation trends, jumped 2.0% year-over-year in August, up from 1.8% the previous month (revised from 2.0%).

This report has reinforced expectations that the Japanese central bank might raise interest rates as early as its September 17-18 policy meeting. Consequently, this provided some support to the JPY and acted as a hindrance to the USD pair. Later on Friday, traders anticipated Warsh's speech in Jackson Hole, Wyoming, which might provide insights into the future trajectory of US interest rates.

Any hawkish statements from Fed officials could help curb the Greenback's losses in the short term. MUFG analysts noted that the Yen "weakened back in response" to Deputy Governor Himino's recent comments, indicating "some disappointment that Himino was not more explicit" about the near-term policy path. While Himino did not explicitly signal a rate hike next month, his overall tone was perceived as hawkish.

In both his speech and subsequent press conference, Himino emphasized that the BoJ needed to "pay more attention to upside inflation risks than before," which MUFG described as "the closest guidance you will get that the pace of rate hikes could be increased." In the daily chart, USD/JPY remained capped as it traded below the 100-day Simple Moving Average (SMA) while staying just above the Bollinger middle band.

The pair had slipped from recent highs, and the Relative Strength Index (RSI) stood at 47.09, suggesting fading upside momentum as prices fluctuated between the middle of the recent volatility band and the upper end.