The Japanese Yen attracts some buyers as strong domestic CPI reaffirms BoJ rate hike bets.Trade uncertainties and rising geopolitical tensions also benefit the JPY’s safe-haven status.A weaker USD contributes to the USD/JPY pair’s retracement slide from the monthly high.
The Japanese Yen (JPY) struggles to capitalize on its modest Asian session gains against a weaker US Dollar (USD) and remains close to the monthly trough touched the previous day. Government data released from Japan showed that the annual National Consumer Price Index (CPI) remained well above the Bank of Japan’s (BoJ) target of 2% in May. This reaffirms market bets that the BoJ will hike interest rates again and turns out to be a key factor that provides a modest lift to the JPY amid a softer risk tone.
However, the BoJ’s cautious approach to unwinding its decade-long monetary stimulus pushed back expectations about the likely timing of the next interest rate hike to Q1 2026. This, along with concerns about the potential economic fallout from existing 25% US tariffs on Japanese vehicles and 24% reciprocal levies on other imports, caps the JPY. The USD, on the other hand, remains depressed despite the Federal Reserve’s (Fed) hawkish pause on Wednesday, and acts as a headwind for the USD/JPY pair.
Japanese Yen struggles to lure buyers amid reduced bets for a BoJ rate hike in 2025The Japan Statistics Bureau reported this Friday that the headline National Consumer Price Index (CPI) rose by 3.5% YoY in May, compared to the previous reading of 3.6%. Meanwhile, the National core CPI, which excludes volatile fresh food prices, picked up from the 3.5% YoY rate in April and grew 3.7% last month – marking the highest level since January 2023.Further details revealed a core reading that excludes both fresh food and energy prices and is closely watched by the Bank of Japan as a gauge of underlying inflation rose 3.3% YoY in May from 3.0% in the prior month. Stronger CPI prints pointed to broadening inflationary pressures in Japan and gives the BoJ more impetus to hike interest rates in the coming months.However, the BoJ earlier this week signaled its preference to move cautiously in normalizing still-easy monetary policy and decided to slow the pace of reduction in its bond purchases from fiscal 2026. Adding to this, the gloomy economic outlook and the uncertainty over US President Donald Trump’s tariffs suggest that the BoJ could forgo hiking interest rates in 2025.The Federal Reserve, on the other hand, projected two rate cuts by the end of 2025, though officials forecast only one 25-basis points rate cut in each of 2026 and 2027. Furthermore, seven of the 19 policymakers indicated they wanted no cuts this year, up from four in March, amid persistent worries that the Trump administration’s tariffs could push up consumer prices.Meanwhile, Trump earlier this week said that tariffs on the pharma sector are coming soon. This adds a layer of uncertainty in the markets ahead of the July 9 deadline for higher reciprocal US tariffs. Adding to this, rising geopolitical tensions continue to weigh on investors’ sentiment, which, along with relatively hawkish BoJ expectations, underpins the Japanese Yen.On the geopolitical front, the Iran-Israel conflict enters its eighth day as Trump weighs US involvement in the war. According to the White House, Trump said that he will allow two weeks for diplomacy to proceed before deciding whether to launch a strike on Iran. European foreign ministers are slated to meet Iranian officials on Friday and press them to de-escalate.USD/JPY bullish technical setup backs the case for a move beyond the 146.00 round figure
From a technical perspective, the USD/JPY par’s back-to-back close above the 145.00 psychological mark this week, along with the overnight move beyond the previous monthly peak, around the 145.45 area, was seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for spot prices remains to the upside. Hence, any further pullback could be seen as a buying opportunity near the 144.50-144.45 area. This, in turn, should help limit losses near the 144.00 round figure. A convincing break below the latter, however, would negate the positive outlook and shift the near-term bias in favor of bearish traders.
On the flip side, the 145.75 area, or the monthly top touched on Thursday, could act as an immediate hurdle ahead of the 146.00 mark. This is closely followed by the May 29 peak, around the 146.25-146.30 region, above which the USD/JPY pair could aim to challenge the 100-day Simple Moving Average (SMA), currently pegged just ahead of the 147.00 round figure. Some follow-through buying might then pave the way for a move towards the 147.40-147.45 intermediate hurdle en route to the 148.00 mark and 148.65 region, or the May monthly swing high.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
AloJapan.com