Nikkei 225 Extends Decline After Strong Tokyo Inflation, USD/JPY Holds Above 151
Nikkei continued lower for the week, after hotter Tokyo CPI inflation data, while USD/JPY returned above 151 after a small dip.
Nikkei 225 Extends Decline After Strong Japanese Inflation, USD/JPY Holds Above 151
The Nikkei 225 has been in a long-term uptrend, consistently finding support from key moving averages. However, the index faced turbulence after the Japanese yen surged by 20 cents last summer, momentarily stabilizing before resuming its upward trajectory. The 50-week SMA provided solid support during this period, allowing the index to maintain its bullish momentum.
Nikkei 225 Faces Renewed Selling Pressure
Despite the previous strength, a combination of the Bank of Japan’s tightening measures and declining risk sentiment in early 2025 triggered a break below key support levels. This led to additional losses, with the 100-week SMA at 36,000 points acting as a strong support zone.
Buyers briefly stepped in, pushing the index past 38,000 points over the last two weeks. However, a sharp 1,000-point drop this week reversed those gains, fueled in part by today’s higher-than-expected Tokyo core CPI data, which reinforced concerns about inflation in Japan.
Japan’s latest inflation report underscores persistent price growth, which could accelerate BOJ’s shift away from ultra-loose monetary policy. If inflation continues to surprise to the upside, the yen could strengthen further, while Japanese stocks may struggle to maintain their recent gains. Markets will now closely watch BOJ’s response and upcoming economic indicators for further direction.
Tokyo CPI Inflation Report: Higher-Than-Expected Price Pressures
Tokyo Core CPI (excluding fresh food) rose by 2.4% YoY, surpassing expectations of 2.2% and the previous reading of 2.2%.
Tokyo headline CPI for February remained steady at 2.9% YoY, slightly above the expected 2.7%, indicating persistent inflationary pressures.
CPI excluding fresh food and energy climbed to 2.2% YoY, exceeding the 2.0% forecast and improving from the prior 1.9% figure.
Key Takeaways & Market Implications
The data suggests that inflation in Japan remains sticky, reinforcing the case for the Bank of Japan to move toward policy tightening in 2025.
With inflation surpassing forecasts, BOJ officials may consider additional measures to control rising prices, potentially leading to a stronger yen and increased bond yields.
Japanese equities, including the Nikkei 225, may face further downside risks, as tighter monetary policy could dampen investor sentiment.
The USD/JPY pair may see increased volatility, depending on the BOJ’s stance and how markets interpret the inflation trend.
USD/JPY Holds Above 151 After Recent Recovery
At the same time, the USD/JPY pair has experienced significant fluctuations in 2025. The currency pair fell over 10 cents in the first two months of the year due to trade tensions, a weaker US dollar, and a more aggressive BOJ stance. However, strong support at the 100-week SMA (146.50s) halted the decline, leading to a sharp rebound. Over the past three weeks, USD/JPY has rallied nearly 5 cents, breaking back above 151 as market sentiment improved and US tariffs were perceived to be less severe than expected.
While the yen’s strength has weighed on Japanese equities, a sustained recovery in USD/JPY could ease some of that pressure. However, if inflation continues to exceed expectations, the BOJ may be forced into further tightening, which could create additional headwinds for both the Nikkei 225 and risk appetite in Japan.
USD/JPY Live Chart
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