The Japanese yen declined on Friday during Asian trading against a basket of major and minor currencies, extending losses for a second consecutive session versus the US dollar and pulling away from its two-week high, as correction and profit-taking pressures persist.

This retreat follows data showing a slowdown in core inflation in Tokyo, easing price pressures on policymakers and reducing the likelihood of a rate hike by the Bank of Japan in next week's meeting.

Despite the decline, the yen remains on track to post a weekly gain amid ongoing political uncertainty in Japan, especially after the ruling partys defeat in the upper house elections.

The Price

USD/JPY rose by 0.35% to 147.49 as of todays session open at 146.99, marking a low of 146.94.

On Thursday, the yen fell 0.35% against the dollar its first loss in four days following correction-driven selling after touching a two-week high of 145.85 earlier in the session.

Tokyo Core Inflation Slows

Data released Friday showed Tokyos core consumer price index rose by 2.9% in July the slowest pace since March below market expectations of a 3.0% rise and down from 3.1% in June.

This deceleration significantly reduces inflationary pressure on the Bank of Japan, diminishing the likelihood of further rate hikes this year.

BOJ Rate Outlook

Following the data, market pricing for a 25-basis-point rate hike by the BOJ in next weeks meeting dropped from 35% to below 20%.

Deputy Governor Shinichi Uchida stated that the trade deal signed with Washington on Tuesday reduced economic uncertainty in Japan.

His remarks fueled market optimism over the potential for resumed rate hikes later this year in the worlds fourth-largest economy.

Weekly Performance

As of the final day of the week, the yen is up approximately 0.9% against the dollar, poised to record its first weekly gain in three weeks.

Political Developments

Japanese Prime Minister Shigeru Ishiba denied reports of a pending resignation following a landslide electoral defeat for the ruling party.

I shared a strong sense of crisis with former prime ministers, but I have not discussed resignation at all, Ishiba stated.

Analyst Commentary

Carol Kong, currency strategist at Commonwealth Bank of Australia, said: The yen will continue to face headwinds amid lingering political uncertainty.

We still dont know what Prime Minister Ishiba plans to do so there's ongoing ambiguity regarding fiscal outlook and BOJ policy, she added.

Major US-Japan Trade Deal

On Tuesday, US President Donald Trump announced the signing of a massive trade agreement with Japan, featuring reciprocal 15% tariffs on Japanese exports to the US and a reduction in auto tariffs from 25% to 15%.

In a Truth Social post, Trump called the deal perhaps the largest ever, noting Japan will invest $550 billion in the US, while America will secure 90% of the profits.

The deal includes opening Japanese markets to US exports particularly autos, trucks, rice, and other agricultural products which Trump claimed will create hundreds of thousands of jobs.

Prime Minister Ishiba confirmed the reduction of US auto tariffs to 15%, describing it as a crucial step given the automotive sectors dominant role in Japanese exports to the US, accounting for 28.3% of shipments in 2024.

Japans auto exports (including cars, buses, and trucks) to the US fell by 26.7% in June after a 24.7% decline in May.

Total exports to the US Japans second-largest trading partner amounted to 10.3 trillion ($70.34 billion) from January to June, down 0.8% year-on-year.