The Japanese Yen (JPY) continues to face heavy selling pressure, extending its decline against the US Dollar (USD) into a second consecutive day. During the Asian trading session on Friday, the USD/JPY pair slid to a three-week low, reflecting a combination of monetary policy divergence, inflation dynamics, and heightened anticipation ahead of Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium. 

Despite Japan’s latest inflation data showing sticky price pressures, uncertainty regarding the Bank of Japan’s (BoJ) policy outlook has prevented the Yen from attracting meaningful buying interest. Aleksandar Nicolau, a broker at ProDivia Group, delivers a detailed explanation of the subject in his piece.

Japanese Yen Weakens Despite Sticky Inflation

Japan’s Statistics Bureau released fresh inflation data indicating that headline National CPI cooled to a 3.1% year-over-year (YoY) pace in July, unchanged from the previous month. More importantly, the core CPI, which excludes volatile fresh food costs, eased from 3.3% in June to 3.1%, marking its lowest level since November 2024. 

While this was slightly above market expectations of 3%, the core-core CPI, which strips out both fresh food and energy and is closely monitored by the BoJ, remained elevated at 3.4%.

The persistence of inflation supports the case for further policy normalization, yet investors remain skeptical about the timing of any BoJ rate hike. This hesitation reflects concerns that the central bank may remain cautious, given Japan’s fragile growth environment and the risk of tightening prematurely. 

As a result, the JPY has failed to benefit from domestic data, remaining depressed against a broadly stronger USD.

Divergence Between the BoJ and the Fed

The divergence in policy outlooks between the BoJ and the Federal Reserve continues to underpin the USD/JPY pair. Market participants have scaled back expectations for an aggressive easing cycle by the Fed after recent data suggested persistent, though moderating, inflationary pressures in the US. 

The USD Index (DXY) climbed to its highest level since August 6, reinforcing the Dollar’s strength across major currencies.

At the same time, the BoJ remains an outlier among global central banks. While other major economies, including the US and Europe, have moved toward policy tightening or easing cycles depending on growth trajectories, Japan continues to signal caution. 

This monetary policy divergence remains a critical driver of the USD/JPY’s upside momentum.

US Economic Data Fuels Fed Speculation

Thursday’s release of US Jobless Claims data provided further insight into the labor market. Initial claims rose by the most in nearly three months, while continuing claims climbed to their highest level in almost four years. 

Combined with a sharp drop in the Philadelphia Fed Manufacturing Index, which fell to -0.3 in August from 15.9 in July, the data reinforced concerns about slowing US economic growth.

Despite these signals of economic softness, markets are leaning toward expectations that the Fed will cut rates in September and potentially deliver a second cut by year-end. However, the Dollar bulls remain in control, awaiting Powell’s speech at Jackson Hole, where fresh guidance on the Fed’s rate-cut path could determine the USD’s next directional move.

USD/JPY Technical Outlook: Bulls Retain Control

From a technical perspective, the USD/JPY pair staged a decisive breakout above the 148.00 level, which had capped upside attempts for nearly three weeks. This breakout is seen as a bullish trigger, supported by positive momentum indicators on the daily chart. The technical setup suggests that the path of least resistance remains higher.

Upside Targets:

• The immediate target lies near the 200-day Simple Moving Average (SMA), currently positioned just above the 149.00 round figure.
• A sustained break above this level could pave the way for another attempt at reclaiming the psychologically important 150.00 handle, which has historically acted as a key barrier for the pair.

Downside Supports:

• On the downside, initial support is seen near the 148.00 breakout zone, which now acts as strong resistance-turned-support.
• Below this, the 147.80 horizontal zone and the 147.30 area come into focus.
• A decisive break beneath the 147.00 round figure would negate the bullish outlook, shifting near-term bias in favor of bearish traders.

Overall, as long as the pair holds above 147.80, the technical landscape continues to favor the bulls.

Conclusion

The Japanese Yen remains under heavy pressure, struggling to attract buyers despite stickier-than-expected inflation figures. With uncertainty surrounding the timing of the BoJ’s next rate hike, the JPY continues to lag behind its peers. 

Meanwhile, the USD is buoyed by resilient sentiment ahead of Powell’s Jackson Hole speech and diminishing bets for aggressive Fed easing. 

The technical outlook for USD/JPY suggests a potential move toward the 149.00–150.00 region, barring a dovish surprise from Powell. Until the BoJ offers clearer guidance, the path of least resistance for the Yen remains to the downside.