The Japanese Yen (JPY) gained traction during the Asian session on Friday, spurred by hawkish comments from Bank of Japan Deputy Governor Shinichi Uchida, who noted a gradual rise in the inflation rate towards the 2% target. The remarks bolstered expectations of further interest rate hikes by the Bank of Japan, countering the softer-than-expected Tokyo Consumer Price Index (CPI) data.

Tokyo’s headline CPI decreased from 3.4% to 2.9% year-on-year in February, while core CPI dropped from 2.5% to 2.2%. Additionally, Japan’s Industrial Production declined by 1.1% month-on-month in January, marking three consecutive months of decreased output.

In the United States, inflationary pressures remain present, reinforcing the Federal Reserve’s cautious approach to monetary policy. The GDP expanded at a 2.3% annualised rate in the final quarter of 2024, aligning with earlier estimates.

The USD/JPY pair retreated below the mid-149.00s, with key support seen at the 149.00 mark. Resistance levels are identified at 148.80 and 150.00, suggesting potential further fluctuations in this range.

Shinichi’s remarks gave traders more confidence that the Bank of Japan could move forward with tighter monetary policy, even though inflation data from Tokyo alone painted a softer picture. While consumer prices there came in below expectations, what matters more is that policymakers, such as him, see the national trend as still pushing towards their long-term aim of stable inflation at 2%.

We also cannot overlook the weakness in Japan’s industrial sector. A third straight month of output declines hints at broader concerns about domestic demand and manufacturing strength. However, the Bank of Japan appears more focused on inflation expectations rather than singular economic reports. That means those trading yen pairs should prepare for future statements from central bank officials. If additional policymakers adopt a similar stance to Shinichi, the market may start pricing in rate changes more aggressively.

Meanwhile, across the Pacific, inflationary forces remain a key concern for Federal Reserve officials, which has kept investors focused on how soon policymakers might consider adjusting interest rates. The most recent US GDP report showed steady growth at 2.3%, confirming that the economy has remained on a solid footing. While this does not dramatically shift expectations for Fed policy, it reinforces the idea that the central bank has reason to avoid easing too quickly.

With the dollar-yen pair easing back below the mid-149 range, immediate attention shifts to levels at 149.00, which may serve as a temporary floor. Should price action remain within this band, any downward pressure could test support near 148.80. On the upside, resistance remains firm around 150.00, making it an area to watch for potential breakouts. Traders managing positions in this market should be mindful of both central bank rhetoric and further economic data that might influence broader sentiment.