Japanese Yen Softens as CPI Inflation Cools to Four-year Low in February

• USD/JPY drifts higher to around 158.55 in Tuesday’s early Asian session. 
• Japan’s National CPI cooled to a four-year low in February; core inflation missed estimates.  
• Trump postponed the strike threat, but Iran denied any talks with the US. 

The USD/JPY pair holds positive ground near 158.55 during the early Asian session on Tuesday. The Japanese Yen (JPY) softens against the US Dollar (USD) after the cooler-than-expected inflation report. Traders will keep an eye on the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) for March, which is due later on Tuesday. 

Data released by the Japan Statistics Bureau on Tuesday showed that the National Consumer Price Index (CPI) rose by 1.3% YoY in February, compared to the previous reading of 1.5%. This figure registered its lowest level since March 2022 and was below the central bank’s 2% target. 

Further details reveal that the National CPI ex Fresh food, the core inflation rate, stood at 1.6% YoY in February, down from 2.0% previously. The figure came in below the market consensus of 1.7%. The so-called “core-core” inflation, excluding prices of fresh food and energy, rose 2.5% YoY in February, compared to the previous reading of 2.6%.

Traders will closely monitor the situation in the Middle East. Any signs of rising tensions or a prolonged conflict could fuel concerns over inflation and rising energy prices. This, in turn, could underpin the Greenback against the JPY in the near term. 

US President Donald Trump was offering Iran a five-day reprieve, pointing to new talks with Tehran that he believed could broker a deal resolving the conflict, according to Bloomberg. However, Iranian officials denied any talks with the US following Trump's remarks. Mohsen Rezaei, the senior military adviser to Iranian Supreme Leader Mojtaba Khamenei, said that the war will continue until Iran receives full compensation for the damage it has sustained.