Yen Strengthens as Dollar Rally Stalls on Inflation Data and Tariff Jitters

The Japanese Yen gained ground against the U.S. Dollar on Friday, halting a two-day surge that had driven the dollar to its highest level in nearly two months. By mid-session, the USD/JPY pair was hovering around 149.50, with the dollar losing steam as traders weighed fresh inflation data alongside renewed trade tensions.

The U.S. Dollar Index, which tracks the currency against a basket of major peers, slipped from recent three-week highs to trade near 98.18. The move came after the release of the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge.

August’s core PCE rose 0.2% on the month, matching forecasts and easing from July’s earlier 0.3% reading, which was revised lower. On an annual basis, the core rate held steady at 2.9%. Headline PCE also rose in line with expectations at 0.3%, pushing the yearly rate to 2.7% from 2.6% in July — a sign that price pressures remain stubborn even as core inflation shows stability.

Consumer sentiment data painted a more subdued picture. The University of Michigan’s survey showed overall sentiment slipping to 55.1 in September, with both short-term and long-term inflation expectations edging slightly lower.

In Japan, fresh figures from Tokyo highlighted inflation holding steady at 2.5% year-on-year in September, unchanged from August after revisions. Core measures, excluding both food and energy, slowed to 2.5% from 3.0%, undershooting expectations and reinforcing signs that domestic price growth may be softening.

Beyond the numbers, markets were rattled by fresh tariff headlines. The U.S. announced sweeping new duties set to begin October 1, including a 100% tariff on imported branded pharmaceuticals, a 50% tariff on kitchen cabinets and bathroom vanities, a 30% tariff on upholstered furniture, and a 25% tariff on foreign-made heavy trucks. The escalation in trade tensions weighed on risk appetite, limiting demand for the dollar despite inflation figures broadly aligning with forecasts.

For now, the dollar remains under pressure as investors attempt to balance steady U.S. inflation with uncertainty over global trade policy — leaving the yen to reclaim some ground after weeks of weakness.