USD/JPY faces headwinds as Tokyo CPI exceeds BoJ target, yen support builds

USD/JPY traded lower during Asian hours following Tokyo CPI data that remained well above the Bank of Japan's 2% target, reinforcing expectations for potential BoJ policy normalization. The persistent inflation in Japan's capital city suggests nationwide price pressures remain elevated, contrasting with the BoJ's historically accommodative stance. Market participants are increasingly positioning for a gradual shift in Japanese monetary policy, which has provided underlying support for the yen. The pair has retreated from recent highs near 150.50, with immediate support emerging at 149.20. Technical momentum indicators suggest further downside potential if the 149.00 psychological level breaks. The inflation dynamics create a divergence between BoJ and other major central banks, particularly as the Fed approaches its terminal rate. Traders should watch for any BoJ communication signals that might accelerate policy normalization timeline, which could trigger more substantial yen appreciation against the dollar.