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Written by DailyFX Research Team

USD/JPY catapulted to monthly highs of 117.25 in early Asian trading this morning as weakness continues to be the prevailing theme in Japan. CPI data came in weaker than expected as National CPI for the month of July posted -0.1% versus 0.0% predicted while annualized data also slipped below market expectations to 0.3% versus the consensus of 0.6%. Annualized Core National CPI fell to 0.2% versus forecasts of 0.5%. Furthermore June’s annualized CPI figure of 0.6% was revised down to 0.2%, which was much steeper than the market anticipated. Although price appreciation remains net positive for the worlds second largest economy, lower than expected numbers today will most likely leave the Bank of Japan hesitant to extend lending rates past 25 basis points before the end of the year. As of 7:00GMT, USD/JPY traded at 117.20, up from Thursday’s New York close price of 116.48.

Japanese shares rose moderately on Friday morning in response to much lower-than-expected inflation numbers, which eased pressure on the Bank of Japan to raise interest rates. By midday the Nikkei 225 was 0.9% higher at 16,107.44, while the broader Topix was up 0.7% to 1,635.03. The yen remained weak against the dollar and Euro, boosting exporters. Transport equipment was up 0.7%, with electrical machinery 0.8% higher, and precision machinery climbing 1.5%. Olympus, the camera maker which has large sales in Europe, was up 1.8% to Y3,360. Toyota, Japan’s biggest car maker, rose 0.5% to Y6,340. Nissan, its largest domestic rival, was 0.6% higher at Y1,298, Toshiba rose 1% to Y790.

Yields on the benchmark 10 year Japanese Government Bond dropped 9 basis points to 1.690% as CPI data erased inflationary concerns, bringing prices higher to 101.766.