Japanese Yen Forecast: USD/JPY Falls as Tokyo Inflation Heats Up – ForexNews.PRO

Tokyo inflation accelerated in October, pressuring the BoJ to raise interest rates. The annual inflation rate rose from 2.5% in September to 2.8%, moving further above the BoJ’s 2% target. Meanwhile, the so-called ‘core-core’ inflation rate increased from 2.5% in September to 2.8% in October.

Economists see Tokyo’s inflation numbers as a leading national inflation indicator, suggesting a pickup in headline and underlying inflation.

Governor Ueda commented on inflation during the Bank of Japan’s press conference on Thursday, October 30, stating:

“We will continue to scrutinize developments in underlying inflation, and whether food price rises, if they persist, could cause upside or downside risks to the price outlook.”

While inflation picked up, Japan’s unemployment rate remained at 2.6% in September. For context, unemployment has been declining since the COVID-19 pandemic, though it is at its highest level since July 2024.

Although stable in September, unemployment remains above recent lows, which could weigh on wage growth. Slower growth may curb consumer spending, potentially dampening demand-driven inflation. A cooler inflation outlook would support a less hawkish BoJ rate path.

While the Tokyo inflation figures pushed USD/JPY below 154, retail sales figures also required attention. Retail sales rose 0.3% month-on-month in September, rebounding from a 1.1% drop in August.

An upswing in consumer spending could bolster the economy, given that private consumption contributes roughly 55% to Japan’s GDP.

The USD/JPY pair extended losses after the retail sales figures, falling to a morning low of 153.837.

Today’s economic indicators signaled a potential pickup in economic momentum and rising national inflation, supporting a more hawkish BoJ rate path. Given these dynamics, USD/JPY maintains a bearish bias despite Powell downplaying the odds of a December rate cut. However, traders should closely monitor comments from Prime Minister Sanae Takaichi, an advocate for ultra-loose monetary policy.

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