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The Japanese yen strengthened on Friday after hotter-than-expected Tokyo inflation data increased expectations for further Bank of Japan interest rate hikes, while the U.S. dollar paused ahead of the closely watched September employment report.
USD/JPY fell nearly 0.2% after Tokyo consumer inflation exceeded market expectations. Headline and core inflation climbed to their highest levels since November 2025, while underlying price pressures remained above the BOJ’s 2% target.
The stronger inflation figures reinforced expectations that the BOJ could continue tightening monetary policy in the coming months. Japan’s central bank raised interest rates by 25 basis points in September and indicated that additional increases could follow if economic and inflation conditions supported further action. Expectations for higher rates also encouraged demand for Japanese government bonds, with the benchmark 10-year yield retreating after reaching a 30-year high earlier in the week.
Meanwhile, the U.S. Dollar Index and dollar futures slipped nearly 0.2% during Asian trading. Despite Friday’s decline, the greenback remained on course for a weekly gain of about 1%, which would mark its third consecutive weekly advance.
Investors are now focused on September U.S. nonfarm payrolls data for fresh signals about the Federal Reserve’s interest-rate outlook. Signs of continued strength in the labor market could support expectations for tighter monetary policy as the Fed seeks to bring inflation back toward its 2% target.
Elsewhere in currency markets, the South Korean won strengthened slightly after September inflation eased but remained above the Bank of Korea’s target. The Australian and Singapore dollars were broadly unchanged.
The Indian rupee weakened, with USD/INR gaining about 0.4% and moving closer to record highs as elevated oil prices pressured the energy-importing economy. The offshore Chinese yuan strengthened modestly, while mainland Chinese markets remained closed for a holiday.
