USD/JPY steadies as CPI hits 1.5%, below BoJ target

TLDR

• Japan headline CPI slowed to 1.5%, lowest since March 2022.
• Below 2.1% forecast, ending 45 months above BOJ’s 2% target.
• Softer inflation eases immediate pressure for additional Bank of Japan hikes.

Japan’s headline consumer price index slowed to 1.5% year over year, below the expected 2.1% and the lowest since March 2022, based on data from the Ministry of Internal Affairs and Communications (Japan). The downside surprise resets the near-term inflation narrative while policymakers assess durability.

The 1.5% reading ended a run of 45 straight months with inflation above the Bank of Japan’s 2% target, as reported by CNBC. The softer print may ease immediate pressure for additional Bank of Japan rate hikes, though the medium-term path still hinges on underlying trends.

Why it matters for BOJ policy outlook, USD/JPY, and markets

The policy debate now turns on persistence. If disinflation proves narrow or temporary, the Bank of Japan’s reaction function may change little; if it broadens into core measures, the hiking impulse could fade.

Policy settings already reflect caution. The Bank of Japan left its policy rate unchanged at 0.75% in January 2026, as noted by FocusEconomics, reinforcing a data-dependent stance with close attention to currency pass-through.

FX and rates absorbed the surprise quickly. USD/JPY traded below its 50-day EMA around the release, with shifting views on Federal Reserve cuts amplifying moves, as reported by FXEmpire. Some market strategists framed the print as a marginal FX impulse before liquidity rebuilt. “modestly yen-negative at the margin,” said analysts at InvestingLive.

Forward scenarios hinge on the yen and wages. Citigroup has warned that a persistent yen slide could compel the BOJ to deliver up to three hikes in 2026. Separately, Oxford Economics lifted its estimate of Japan’s neutral nominal rate to about 1.5%, implying that a higher-for-longer profile cannot be ruled out if underlying inflation remains sticky.

At the time of this writing, Bitcoin (BTC) traded near 67,221 with very high realized volatility around 11.83% and a broadly bearish tone, offering a cautious backdrop for risk assets.

What cooled: headline vs core vs core-core inflation drivers

Headline captures the full CPI basket; “core” typically removes energy; “core-core” in BOJ parlance excludes both food and energy, focusing on underlying momentum. According to Bloomberg, the latest slowdown reflected temporary factors and was unlikely to shake the central bank’s broader stance.

With headline at 1.5%, attention shifts to whether core and especially core-core gauges decelerate in a sustained way. The Tokyo CPI lead indicator and spring wage settlements will be pivotal for judging durability and the BOJ’s next steps.