Japanese yen fell after reaching a one-week high against the US dollar.
Japanese yen (JPY) remained weak throughout the early European session on Tuesday, but it lacked bearish conviction despite growing expectations that the Bank of Japan (BoJ) will raise interest rates further.
The shrinking US-Japan yield disparity may help boost the lower-yielding JPY.
The recent narrowing of the US-Japan yield differential, driven by the Federal Reserve’s (Fed) wagers on additional interest rate decreases, helps to minimize losses for the lower-yielding JPY.
That being said, the optimism is over The delay in implementing US President Donald Trump’s reciprocal tariffs, as well as discussions aimed at ending the Russia-Ukraine crisis, are undermining demand for the safe-haven Japanese yen. Aside from that, a solid increase in US Treasury bond yields helps the US Dollar (USD) end a three-day losing streak and reach a two-month low, while remaining supportive of the bid tone around the USDJPY pair.
Daily Market update: The Japanese yen maintains its negative bias amid an increase in US bond yields and slight USD strength.
US President Donald Trump said on Thursday that he intends to announce reciprocal tariffs against every country that imposes penalties on US goods, but he did not provide any specifics.
Furthermore, the confidence regarding talks between the US and Russia aiming On Tuesday, efforts to end the bloodshed in Ukraine increased market confidence while undermining demand for the safe-haven Japanese yen.
Against the backdrop of Japan’s robust inflation numbers, the solid Q4 Gross Domestic Product (GDP) reported on Monday strengthened the case for the Bank of Japan to raise interest rates this year.
Markets are now pricing in another 37 basis points of hikes by December, bringing the yield on the benchmark 10-year Japanese government bond to its highest position since April 2010.
Meanwhile, a surprising dip in US retail sales, combined with contradictory signals on inflation, suggests that the Federal Reserve may cut interest rates at its September or October policy meeting.
Philadelphia Fed President Patrick Harker stated on Monday that the The labor market essentially balanced, and the current economy advocates for a consistent policy, as inflation has been sticky in recent months.
Michelle Bowman, a member of the Fed Board of Governors, stated that high asset values may have hampered inflation progress and that more clarity about dropping inflation required before lowering interest rates.
Christopher Waller, a Fed Board of Governors member, stated that inflation development last year excruciatingly sluggish, and that rate reduction would be warrant in 2025 if inflation followed the 2024 pattern.
Fed Funds Futures predict a 40 basis point Fed rate cut in 2025.
Nonetheless, Fed Funds Futures predict a 40 basis point Fed rate cut in 2025, resulting in the recent drop in US Treasury bond yields and contributing to the narrowing of the US-Japan rate disparity.
Traders anticipate the release of The Empire State Manufacturing Index from the United States, combined with statements by important FOMC members, would drive the US dollar and the USDJPY pair.
