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Yen Strengthens on Hot Tokyo Inflation as Dollar Awaits US Payrolls Data
Summary
The Japanese yen gained after stronger-than-expected Tokyo inflation data fueled bets on further Bank of Japan rate hikes, while the U.S. dollar held steady ahead of a crucial nonfarm payrolls report.
The Japanese yen firmed against the U.S. dollar on Friday as surprisingly strong inflation data from Tokyo intensified speculation that the Bank of Japan will pursue further interest rate hikes. Meanwhile, the dollar was largely muted as traders awaited the release of key U.S. nonfarm payrolls data for fresh signals on the Federal Reserve's policy path.
Yen Gains on Rate Hike Bets
The yen saw increased demand after data showed Tokyo's consumer price index (CPI) inflation accelerated more than anticipated. Both the headline and core CPI figures jumped to their highest levels since November 2025, with underlying inflation remaining significantly above the Bank of Japan's 2% annual target.
The print reinforces expectations for further monetary tightening from the BOJ, which raised rates by 25 basis points in September and indicated more hikes were possible. In response to the data, buying activity was seen in Japanese government bonds, with the benchmark 10-year yield pulling back from a 30-year high reached earlier in the week.
Dollar Pauses Ahead of Jobs Report
The U.S. Dollar Index, which measures the greenback against a basket of currencies, edged slightly lower in Asian trading but remained on track for its third consecutive weekly gain. Investor focus is squarely on the September nonfarm payrolls report, due later Friday, for a critical update on the health of the U.S. labor market.
AdRecent signs of economic resilience have supported the dollar by giving the Federal Reserve more headroom to keep interest rates elevated. This sentiment was echoed overnight by several Fed officials, including Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, who warned that rates may need to rise further to control persistent inflation.
Broader Market Muted
Trading in other Asian currencies was subdued, partly due to a market holiday in China that reduced overall volume. Rising U.S. Treasury yields and elevated oil prices also weighed on investor risk appetite.
- The Indian rupee (USD/INR) underperformed, weakening toward record lows as rising oil prices pressured the currency of the major energy importer.
- The South Korean won (USD/KRW) was little changed after its own inflation data eased slightly but remained above the central bank's target.
- The Australian dollar (AUD/USD) and Singapore dollar (USD/SGD) traded flat.
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