As U.S. CPI Looms, Japan's Economic Dilemma Fuels Dollar-Yen Volatility

The U.S. dollar and Asian currencies remained in a tight trading range on Friday as markets awaited the delayed release of the September U.S. consumer price index (CPI) data, a critical indicator that could shape the Federal Reserve's rate-cut decision, according to an Investing.com report. The USD Index, which measures the greenback against a basket of major currencies, edged up 0.1% to 105.6, poised for a 0.6% weekly gain, the Investing.com piece noted. Investors, however, avoided large positions ahead of the CPI report, which had been postponed earlier this month due to a government shutdown, the article added.

Japan's inflation data added to the pre-CPI cautiousness. The country's core consumer inflation rose 2.9% year-on-year in September, exceeding the Bank of Japan's 2% target, the Investing.com report said. Meanwhile, Japan's factory activity contracted for the 19th month in October, hitting its weakest level since April 2023, according to the Markit manufacturing PMI noted in the same article. This divergence between inflation resilience and manufacturing weakness has intensified speculation about the BoJ's timeline for tightening policy. ING analysts noted that while a rate hike in December is now more likely, a split decision at the October meeting remains possible, the report added.

The USD/JPY pair climbed to a two-week high of 152.65, reflecting the yen's vulnerability amid rising oil prices and U.S. sanctions on Russian oil companies, reported by FXStreet. "Japan's a big importer of oil, and higher prices hurt," said Marc Chandler of Bannockburn Capital Markets. The yen's weakness also underscores the widening policy gap between the BoJ and the Fed, with the former gradually unwinding its ultra-loose monetary stance and the latter expected to cut rates by 25 basis points in response to a cooling labor market, the Investing.com story observed.

Markets are now pivoting to the CPI data, which is expected to show headline inflation rising 0.4% month-on-month and core inflation up 0.3%, the Investing.com report said. A stronger-than-anticipated report could delay the Fed's rate-cut timeline, while a surprise slowdown might accelerate it. "Tariffs may start to become a little more obvious, but the Fed's primary worry is the cooling labor market," ING analysts said in the report. The outcome will also influence the U.S.-China trade dynamics, as President Trump is set to meet Xi Jinping in Seoul next week, the article added.

Looking ahead, the USD/JPY pair faces key resistance at 155.00, with traders monitoring the BoJ's policy signals and U.S. labor data, according to an FXEmpire forecast. A stronger CPI print or hawkish Fed rhetoric could push the dollar higher, while weak readings or BoJ dovishness might pressure the yen further. For now, the market's patience is being tested as it awaits a data-driven catalyst to break the current stalemate.