Dollar Hovers Near 12-Week Lows as Year-End Trading Stays Muted; Yen Steady After Tokyo Inflation Data

Most major currencies traded in tight ranges on Friday amid thin year-end market conditions, while the U.S. dollar hovered near 12-week lows as investors weighed softer U.S. rate expectations and a fresh batch of Japanese economic data.

Liquidity remained light across Asian and European FX sessions, with many market participants sidelined for the holidays. The U.S. Dollar Index was broadly unchanged during Asia hours, holding close to its weakest level since early October as bets on further Federal Reserve rate cuts in 2026 continued to pressure the greenback. Softer U.S. Treasury yields have also capped dollar momentum, offering some support to regional currencies.

Yen steady as Tokyo inflation stays above BOJ target

In Japan, the USD/JPY slipped 0.3%, after data showed Tokyo consumer inflation eased in December, but remained above the Bank of Japan’s 2% target — reinforcing expectations that policymakers may continue gradual policy normalization.

Still, the broader macro picture remained mixed. Industrial production declined in November, reflecting ongoing softness in export-oriented manufacturing, while retail sales improved, underscoring resilient household spending. The contrasting signals kept the yen largely range-bound as traders avoided aggressive positioning into year-end.

Euro and sterling edge lower in quiet trade

In Europe, the EUR/USD dipped 0.1%, while GBP/USD fell 0.2%, with both pairs drifting modestly lower in subdued volumes. Investors largely stayed on the sidelines ahead of the year-end calendar, with attention expected to shift back to U.S. inflation and central bank signals in early January.

With trading conditions thin and directional catalysts limited, FX markets continued to emphasize consolidation rather than trend-driven moves — leaving the dollar’s soft bias and Japan’s policy outlook as the primary themes guiding sentiment.