Tokyo’s Consumer Price Index (CPI) for May 2025, released earlier this morning, underscores that inflationary pressures in Japan remain persistent. As a key leading indicator for nationwide trends, the latest Tokyo CPI readings are likely to influence upcoming monetary policy decisions by the Bank of Japan (BoJ).

Tokyo CPI – May 2025 Overview:

• Headline CPI: +3.4% YoY, in line with market expectations but slightly lower than April’s +3.5%.
• Core CPI (ex. fresh food): +3.6% YoY, exceeding forecasts and marking the highest level since January 2023.
• Core-Core CPI (ex. fresh food and energy): +3.3% YoY, also above estimates, reaching a peak not seen since January 2024.

Despite a slight dip in headline inflation, the underlying inflation continues to trend higher. The Core and Core-Core CPI measures—which both strip out volatile items—indicate sticky price pressure.

The inflation data is slightly diverging from April’s national CPI report where food prices were the main driver of inflation. Regardless of that, the fact remains, where price growth in Japan is staying elevated.

Market Increases Bets on BoJ Tightening

Markets are now expecting the Bank of Japan (BoJ) to pace faster with the tightening, with many anticipating a 25-basis point hike as early as the July meeting.

BoJ Governor Kazuo Ueda has voiced growing concerns over rising food prices and the risk of broader inflation. He warned that ongoing price pressures could spread across the economy, further reinforcing core inflation.

In his recent speech earlier this week, Ueda also signaled a stronger intention to tighten policy due to rising inflation. However, uncertainty around global trade and its potential drag on Japan’s economic growth is causing BoJ policymakers to take a more cautious approach.

Ueda reiterated over the speeches earlier, that if future data gives the BoJ more confidence in their baseline outlook, they will adjust the level of monetary support as needed.

The earlier cautious tone from the BoJ had pushed the yen lower. However, after the US court ruling blocking Trump tariffs and the latest jump in inflation, the yen has since recovered, gaining strength late yesterday and into this morning.

Technical Outlook for Yen Pairs

USDJPY: 145 Key level in Focus

USDJPY pulled back after retesting the 146.00 level, with 145.00 now acting as a key psychological resistance. This suggests the downtrend is likely to remain intact.

On the 4-hour chart, the pair has dropped back below the 200-EMA, reinforcing the bearish trend. Staying below this level and other key EMAs continues to support a downside bias.

Unless USDJPY breaks above 145.00, we are unlikely to see any renewed bullish momentum in the near term.

GBPJPY: Double Top at Key Resistance

A potential double top pattern has formed near the 196.00 level—a key resistance zone that has been tested multiple times in recent months. The latest daily candle also printed a strong bearish formation, reinforcing the possibility of a downside reversal.

Over the short-term setup, GBPJPY is currently supported around the 193.60 level, which has recently acted as a key support. However, if selling momentum is strong enough to break below this level, we could see renewed downside pressure on the pair.

AUDJPY: Head & Shoulder May Fail?

For AUDJPY, the previously mentioned potential inverted head and shoulders pattern may be failing, as price was rejected again near 93.20.

Watch the 92.00 level—if it breaks below this, the downtrend is likely to resume.

Setback for Bullish Yen?

While the yen still shows potential to strengthen, the recent lack of a clear market direction has weighed on its gains. This is partly due to the Bank of Japan’s cautious stance and the easing of global trade concerns, which has reduced the yen’s appeal as a safe-haven currency.

Yen bulls should remain cautious in this environment. However, if US fiscal risks and political uncertainties resurface, a weakening US dollar could still support the yen in the near future.