Yen Recovers on Inflation Data but Remains Vulnerable

The Japanese yen is making an attempt to recover from its recent losses, but its prospects remain limited. The USD/JPY pair edged lower to 157.94 on Friday after a sharp rise the previous day. However, Tokyo inflation data showed core inflation accelerating to 2.7% in September, exceeding the Bank of Japan's 2% target for the first time in nine months.

This positive news is being offset by the Bank of Japan's summary of opinions from its September meeting, which was less hawkish than expected. The central bank is increasingly focused on the risk of inflation exceeding its target, keeping the prospect of another rate hike before year-end alive, but it gave no clear signal on the timing of the next move.

The yen remains on track for a third consecutive weekly decline due to a strong US dollar and elevated US Treasury yields. These factors are also contributing to the persistent US-Japan interest rate differential, which continues to weigh on the Japanese currency.