Japan’s National CPI rose 1.5% year on year in January, down from 2.1%, according to the Japan Statistics Bureau. National CPI excluding fresh food rose 2.0% year on year, down from 2.4% and in line with market expectations.
CPI excluding fresh food and energy rose 2.6% year on year in January, compared with 2.9% previously. After the release, USD/JPY was up 0.16% at 155.05.
Inflation And Core Measures
Inflation shows how prices rise for a basket of goods and services. It is often reported as month-on-month (MoM) and year-on-year (YoY) changes. Core inflation removes more volatile items, such as food and fuel, and is often used for policy targets around 2%.
The Consumer Price Index (CPI) measures how prices change over time for a basket of goods and services. It is also reported on MoM and YoY bases. Core CPI excludes volatile food and fuel items, and higher core readings are often linked to higher interest rates.
In foreign exchange, central banks may raise interest rates to fight higher inflation, which can support a currency. For gold, higher interest rates can reduce demand because they increase the cost of holding a non-yielding asset. Lower inflation can have the opposite effect.
Japan’s latest inflation data shows a clear cooling trend, with the core rate falling back to the 2.0% target in January. This slowdown reduces the pressure on the Bank of Japan to raise interest rates again in the near term. As a result, the large interest-rate gap between the United States and Japan is likely to remain, supporting a stronger dollar against the yen.
This view is supported by recent US data. Early February non-farm payrolls surprised to the upside, with 210,000 jobs added. This strength suggests the Federal Reserve is unlikely to rush into interest-rate cuts. This policy gap remains the main reason USD/JPY is holding near the 155 level.
Options Strategy For Usd Jpy
For derivatives traders, this backdrop makes USD/JPY call options attractive over the next few weeks. We are looking at strikes around 157 or 158, with expirations in late March or April, to benefit from any further yen weakness. This strategy offers defined risk if the current trend continues.
Looking back at 2025, the Bank of Japan’s cautious stance after its historic policy shift stopped the yen from sustaining a rally. Today, implied volatility for USD/JPY options is near 7.5%, well below the double-digit levels seen for much of last year. Lower volatility makes option premiums cheaper, which may create a good entry point for new positions.
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