**Forex Market Update: Dollar Weakens After U.S. Inflation Data, Yen Firms Amid BOJ Signals**
*Source: Original reporting by MiTrade, adapted and expanded upon with additional research by market analyst Thomas Smith*
The U.S. dollar slipped against major forex peers in recent trading after consumer inflation data pointed to persistent price pressures, complicating the Federal Reserve’s timeline for interest rate decisions. Meanwhile, the Japanese yen gained strength on renewed speculation that the Bank of Japan (BOJ) could soon exit its decades-long ultra-loose monetary policy.
This article outlines key developments in global currency markets, the economic indicators driving investor sentiment, and the central bank policy outlooks influencing forex trends in the near term.
## U.S. Dollar Dips After Sticky Inflation Data
On Thursday, September 12, 2025, the dollar fell as markets reacted to the latest U.S. Consumer Price Index (CPI) data. According to the Bureau of Labor Statistics:
– Headline CPI rose by 0.6% in August, the largest monthly increase since June 2022
– On a year-over-year basis, inflation rose to 3.7%, up from 3.2% in July
– Core inflation, stripping out food and energy, increased by 0.3% on the month and 4.3% annually, down from 4.7% the prior month
These figures underscore a difficult balancing act for the Federal Reserve. While the central bank has made significant progress in bringing down inflation from its 2022 highs, the August CPI bump appears primarily driven by energy prices, yet core inflation remains uncomfortably above target.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, dropped 0.3% following the data release, trading around 104.72 at its lowest point of the session.
### Market Interpretation:
– Traders are recalibrating expectations for further rate hikes.
– As of now, Fed Funds Futures suggest an over 90% probability that the Federal Reserve will hold rates steady at its next meeting on September 20.
– Market pricing also indicates a roughly 40% chance of a final 25 basis point hike by year-end.
This dovish tilt caused yields across the U.S. Treasury curve to fall, adding further pressure to the dollar.
## Japanese Yen Firms as BOJ Offers Hawkish Signals
At the same time, the Japanese yen strengthened significantly, gaining against both the U.S. dollar and other major peers, after remarks from high-ranking officials in Japan hinted at a possible normalization in monetary policy.
BOJ Governor Kazuo Ueda hinted that Japan could consider ending its negative interest rate policy if wage growth and inflation continue to trend higher. In a weekend interview with the Yomiuri newspaper, Ueda said the central bank might have enough data by the end of the year to determine whether it can shift away from unconventional monetary easing.
– USD/JPY slipped to 146.42, down from over 147 earlier in the week
– The yen gained also against the euro and pound, boosted by rising expectations of a BOJ pivot
– Japanese 10-year sovereign bond yields rose past the 0.7% mark, their highest level since 2014
For more than a decade, the BOJ has maintained negative interest rates and implemented yield curve control (YCC) to manage its benchmark rate structure. The possible shift could have wide-ranging implications for global liquidity and currency flows.
### Market Reactions and Expectations:
– A BOJ pivot could mark the end of Japan as a global provider of cheap capital via the yen carry trade.
– Forex strategists from Morgan Stanley and Goldman Sachs have issued notes suggesting that upside risk exists for the yen if the central bank normalizes policy in early 2026.
– Speculation around the BOJ’s move has added further volatility to JPY-based crosses.
## Euro Holds Firm Amidst
Read more on USD/CAD trading.