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Tokyo inflation jump boosts the yen and raises odds of a rate hike in June.
The Japanese yen strengthened in Asian markets on Friday, extending gains for a second consecutive session against the US dollar. This upward momentum came as the currency rebounded from a two-week low, supported by renewed buying interest at discounted levels.
The rally was further fueled by hotter-than-expected inflation data out of Tokyo, which signaled growing price pressures and reinforced market expectations for a potential interest rate hike by Japan's central bank in June.
USD/JPY Exchange Rate Performance
The US dollar slipped by 0.5% against the yen, reaching ¥143.43, down from the opening rate of ¥144.16. The session high was recorded at ¥144.18. On Thursday, the yen rose 0.45%—its first gain in four days—after having hit a two-week low of ¥146.29 earlier in the session.
Tokyo Core Inflation Surges
Fresh data showed that Tokyo’s core consumer price index rose 3.6% year-on-year in May, marking the fastest pace since January 2023 and surpassing market expectations of 3.5%. In April, the index had increased by 3.4%.
This acceleration in consumer prices highlights growing inflationary pressures, increasing the likelihood that policymakers will tighten monetary policy by raising interest rates later this year.
Interest Rate Outlook
Following the release of inflation data, market pricing for a 25 basis point rate hike in June rose from 35% to 45%. Investors are now closely monitoring upcoming data on inflation, labor market conditions, and wage growth to reassess the monetary policy outlook.
