The Japanese yen declined on Friday during Asian trading against a basket of major and minor currencies, extending losses for a second consecutive session versus the US dollar and pulling away from its two-week high, as correction and profit-taking pressures persist.
This retreat follows data showing a slowdown in core inflation in Tokyo, easing price pressures on policymakers and reducing the likelihood of a rate hike by the Bank of Japan in next week’s meeting.
Despite the decline, the yen remains on track to post a weekly gain amid ongoing political uncertainty in Japan, especially after the ruling party’s defeat in the upper house elections.
The Price
• USD/JPY rose by 0.35% to ¥147.49 as of today’s session open at ¥146.99, marking a low of ¥146.94.
• On Thursday, the yen fell 0.35% against the dollar — its first loss in four days — following correction-driven selling after touching a two-week high of ¥145.85 earlier in the session.
Tokyo Core Inflation Slows
Data released Friday showed Tokyo’s core consumer price index rose by 2.9% in July — the slowest pace since March — below market expectations of a 3.0% rise and down from 3.1% in June.
This deceleration significantly reduces inflationary pressure on the Bank of Japan, diminishing the likelihood of further rate hikes this year.
BOJ Rate Outlook
• Following the data, market pricing for a 25-basis-point rate hike by the BOJ in next week’s meeting dropped from 35% to below 20%.
• Deputy Governor Shinichi Uchida stated that the trade deal signed with Washington on Tuesday reduced economic uncertainty in Japan.
• His remarks fueled market optimism over the potential for resumed rate hikes later this year in the world’s fourth-largest economy.
Weekly Performance
As of the final day of the week, the yen is up approximately 0.9% against the dollar, poised to record its first weekly gain in three weeks.
Political Developments
Japanese Prime Minister Shigeru Ishiba denied reports of a pending resignation following a landslide electoral defeat for the ruling party.
“I shared a strong sense of crisis with former prime ministers, but I have not discussed resignation at all,” Ishiba stated.
Analyst Commentary
• Carol Kong, currency strategist at Commonwealth Bank of Australia, said: “The yen will continue to face headwinds amid lingering political uncertainty.”
• “We still don’t know what Prime Minister Ishiba plans to do… so there’s ongoing ambiguity regarding fiscal outlook and BOJ policy,” she added.
Major US-Japan Trade Deal
On Tuesday, US President Donald Trump announced the signing of a “massive” trade agreement with Japan, featuring reciprocal 15% tariffs on Japanese exports to the US and a reduction in auto tariffs from 25% to 15%.
In a Truth Social post, Trump called the deal “perhaps the largest ever,” noting Japan will invest $550 billion in the US, while America will secure 90% of the profits.
The deal includes opening Japanese markets to US exports — particularly autos, trucks, rice, and other agricultural products — which Trump claimed will create “hundreds of thousands of jobs.”
Prime Minister Ishiba confirmed the reduction of US auto tariffs to 15%, describing it as a crucial step given the automotive sector’s dominant role in Japanese exports to the US, accounting for 28.3% of shipments in 2024.
Japan’s auto exports (including cars, buses, and trucks) to the US fell by 26.7% in June after a 24.7% decline in May.
Total exports to the US — Japan’s second-largest trading partner — amounted to ¥10.3 trillion ($70.34 billion) from January to June, down 0.8% year-on-year.
