Tokyo Core CPI drops to 3.1%, US Core PCE higher than expected, Yen steady

The Japanese yen has edged higher on Friday. In the North American session, USD/JPY is trading at 144.57, up 0.16% on the day.

Tokyo Core CPI surprised on the downside in June, falling to 3.1% y/y. This was down sharply from the 3.6% gain in May and below the market estimate of 3.3%. This was the the first slowdown in Tokyo core inflation since February. The decline was largely driven by a renewal of fuel subsidies and a reduction in water charges.

Despite the drop, the rate remains well above the Bank of Japan's 2% target, maintaining expectations for another rate hike in the second half of the year.

BoJ Governor Ueda has signaled that the Bank will raise rates if it is confident that wage growth is sustained, which is critical to maintaining inflation at the 2% target. However, this week's BOJ Summary of Opinions showed that some members are more dovish, given global trade tensions and the bumpy US-Japan trade talks. Japan has said it will not agree to US tariffs of 25% on Japanese cars, and six rounds of talks in the past two months have failed to produce a deal.

US Core PCE Price Index higher than expected

The Core PCE Price Index, the Fed's preferred inflation indicator, accelerated in May and was higher than expected. The index rose 2.7% y/y up from an upwardly revised 2.6% in May and above the consensus of 2.6%. Monthly, the index rose 0.2%, up from 0.1% which was also the consensus. This was a three-month high and will boost the case for the Fed to leave interest rates unchanged at the July meeting.

• USD/JPY faces resistance at 144.49 and 144.64
• 144.31 and 144.16 are the next support levels