Tokyo’s headline CPI rose 1.6% year on year in February, up from 1.5% in January, according to the Statistics Bureau of Japan. Tokyo CPI excluding fresh food rose 1.8% year on year, compared with 1.7% expected and 2.0% previously.
Tokyo CPI excluding fresh food and energy rose 1.8% year on year in February, down from 2.0% in the prior reading. Tokyo CPI is released before the nationwide CPI. It excludes fresh food because those prices can swing with the weather.
Usd Jpy Reaction And Key Levels
After the data, USD/JPY was down 0.20% on the day at 156.13. Key levels to watch were 156.82, 157.66, and 159.23 on the upside. On the downside, levels included 155.35, the 100-day EMA at 154.45, and 152.64.
The Bank of Japan targets inflation of about 2%. It introduced Quantitative and Qualitative Easing in 2013, added negative interest rates in 2016, and later controlled the 10-year yield. It then raised rates in March 2024.
In 2022 and 2023, the gap between Japan’s policy and other central banks’ policies weakened the yen. That move partly reversed in 2024. Inflation moved above 2% as the yen weakened, global energy prices rose, and wage growth looked more likely.
This is a look back at Tokyo CPI data from February 2025, when headline inflation was 1.6%. At the time, it was seen as a small rise, but it continued a slow upward trend. The picture is different now: nationwide inflation in January 2026 came in stronger at 2.4%, beating market expectations.
BoJ Outlook And Yen Volatility
Firm inflation through 2025 led the Bank of Japan to raise rates again to 0.25% late last year. This has changed expectations for policy ahead. Markets are no longer only looking for signs that inflation is rising. They are actively pricing in when the next BoJ rate hike could happen.
A year ago, USD/JPY was trading above 156. Since then, the smaller interest-rate gap has pushed the pair down to about 148.50 today. This increases the chance of further yen strength and makes long USD/JPY positions riskier. Traders are also using options more, including buying USD/JPY puts to protect against a sudden drop.
In the coming weeks, attention will be on early results from the “shunto” spring wage talks. Early reports suggest wage growth could exceed 4.5%, the strongest in decades. That would add pressure on the BoJ to act again soon. As a result, implied volatility in yen pairs is rising, which suggests traders should be ready for bigger price swings.
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