Dollar flat after inflation data, yen set for strong weekly gain

The yen was set for its best week in almost 15 months on Friday, having climbed steadily after Japanese Prime Minister Sanae Takaichi’s historic election win.

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The U.S. dollar was mostly flat against peer currencies on Friday after data showed a less-than-expected increase in inflation in January, suggesting the Federal Reserve could continue to hold rates steady in the near term.

The Japanese yen was set for its strongest weekly gain in a year.

U.S. Labor Department data on Friday showed that the consumer price index rose 0.2% last month compared with an estimate of 0.3% from economists polled by Reuters.

The euro was slightly higher at $1.1875 against the dollar, and was set to gain 0.4% this week. Against the Swiss franc, the dollar weakened 0.21% to 0.7677 and was on course for a weekly loss of 0.95%.

The dollar’s behavior reflects market positioning as it awaits fresh central bank signals on the direction of interest rates, said Olivier Bellemare, senior derivatives trader at Monex Canada in Montreal.

Market reaction is ‘timid’

Earlier this week, data suggested the U.S. labor market was stabilizing with a drop in the U.S. unemployment rate amid strong jobs growth in January and a less-than-expected decrease in the number of Americans filing new applications for unemployment.

“The market reaction to the data was timid at best and the moves were mostly tactical,” Bellemare said.

The dollar index edged lower by 0.08% to 96.84, on track to shed 0.73% for the week.

The yen has dominated activity in the foreign exchange market this week, after Japanese Prime Minister Sanae Takaichi’s historic election win allayed some investor worries about the government’s finances.

Yen’s strongest performance in a year

The yen was still headed for a gain of 2.64% for the week, its largest rise since February last year, and it gained slightly on the day at 152.65.

The yen was flat against the euro but still was headed for a 2.27% weekly jump against the single currency, its strongest performance in a year.

“Over the longer term, yen‑weakening risks remain firmly in place,” said Bank of America Global Research analysts led by Claudio Piron in an investor note. “But in the near term, the combination of potential intervention and scope for the market to further price-in Bank of Japan hikes at the March and April meetings skews the risk‑reward for USD/JPY to the downside.”

The Australian dollar, the top-performing major currency of 2026 so far after soaring in recent weeks on a hawkish Reserve Bank of Australia, was down 0.19% at $0.707, but still headed for a 0.66% gain this week.

The Canadian dollar was flat flat versus the greenback to $1.36 per dollar, and set to drop 0.45% for the week.