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Japan’s national Consumer Price Index (CPI) surged to 4.0% in January 2025, up from 3.6% in the previous month, marking its highest level since January 2023. Core inflation, which excludes food prices, rose to a 19-month high of 3.2% year-over-year, reflecting persistent inflationary pressures. Notably, food prices saw a sharp increase of 7.8% YoY, further highlighting the rising cost of living.

(Japan National CPI y/y; Source: Trading Economics)

(Japan National Core CPI y/y; Source: Trading Economics)
BoJ Rate Hike Bets Remain Strong
In response to mounting inflation, the Bank of Japan (BoJ) raised its benchmark interest rate to 0.5% in January 2025, signaling a shift toward policy normalization. The central bank has previously indicated that if wage growth continues to support consumer spending, central bank would keep the tightening cycle going on.
The stronger-than-expected inflation data has further reinforced market expectations for additional tightening by the Bank of Japan in the near future. Market participants now widely anticipate another BoJ rate hike in Q3 2025. However, with the latest CPI figures indicating mounting inflationary pressure, the next move could even come as early as mid-2025, potentially accelerating the pace of policy normalization from BoJ.
Yen Reversed on Stronger CPI Data
Increased Bets on BoJ hikes generally boosting the Yen, but it was sharply reversed on post-release. This move likely attributed to common phenomenon similar to what we called “Sell the news”, as the market has been likely priced in in recent Yen’s rally.
Despite the sharp pullback, the Yen broadly remain in a bullish trend (or considered a downtrend in major yen pairs).

(USDJPY, 4H Chart Analysis; Source: Trading View)
USD/JPY has been under pressure recently, briefly breaking below the key psychological level of 150.00 yesterday, marking a two-month low. However, following the data release this morning, the pair is showing signs of a rebound.
In near-term, a further rebound near 150.00 can be expected and even extend further. However, on broader technical perspective, unless USDJPY clearly breaks above 151.30 resistance, bias toward the downside is still more likely.
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