FX.co ★ Crude | USD/CAD

During Friday's North American trading session, the USD/JPY currency pair experienced a notable decline, dropping by more than 0.3% to settle around the 150.50 level. This downward movement occurred despite the release of US Personal Consumption Expenditures (PCE) price index data for February, which indicated persistent inflationary pressures. Specifically, the US core PCE inflation, excluding volatile food and energy prices, rose by 2.8% year-over-year, exceeding market expectations of a 2.7% increase. This data aligns with the Federal Reserve's own projections, which forecast a 2.8% core PCE inflation rate by the end of the year. The Fed has maintained its current interest rate target within the 4.25%-4.50% range, signaling a cautious approach to any adjustments, partly due to the uncertainty surrounding potential tariff policies. The stronger-than-expected US inflation data bolsters the Federal Reserve's rationale for maintaining current interest rates for an extended period. This stance aims to curb inflationary pressures without jeopardizing economic growth. However, market participants are also closely monitoring the potential impact of newly announced reciprocal tariffs. These tariffs, which are aimed at addressing the nation's widening trade deficit, have raised concerns about a potential global economic slowdown and the resurgence of inflationary pressures. The ambiguity surrounding the specific details and scope of these tariffs is contributing to market volatility and weighing on the USD/JPY pair.

On the Japanese yen side, robust Tokyo Consumer Price Index (CPI) data for March has fueled speculation that the Bank of Japan (BOJ) will raise interest rates later this year. The strong inflation numbers have provided further evidence that Japan is experiencing a sustained increase in prices, bolstering the argument for tightening monetary policy. This prospect of higher interest rates in Japan has contributed to the yen's appreciation against other currencies, including the US dollar. Therefore, the combination of rising Japanese inflation expectations, potential BOJ rate hikes, and the uncertainty surrounding US trade policies has contributed to the decline of the USD/JPY pair. While US inflation remains elevated, which could usually help prop the USD, the global unease relating to potential US tariffs, has shifted investor sentiment. The result, stronger Yen, and weaker USD/JPY.