USDJPY pair staged a sharp rebound on Tuesday, rising 0.35% to trade near 147.70 during the European session. This recovery followed a brief dip to a 10-day low around 146.60, as the Japanese Yen underperformed across the board despite the Bank of Japan (BoJ) projecting a more hawkish stance in its July policy minutes.
While BoJ officials voiced increasing confidence about tightening policy by the end of 2025, the Japanese Yen (JPY) surprisingly weakened. This counterintuitive market response suggests that traders remain unconvinced that the BoJ will act aggressively or swiftly enough in an environment dominated by external macro forces and evolving Fed dynamics.
BoJ Minutes Hint at Year-End Rate Hike
According to the minutes from the BoJ’s July monetary policy meeting, central bank officials appear to be laying the groundwork for further tightening. Policymakers are reportedly more optimistic about achieving sustainable inflation near the 2% target and are now more confident about implementing another rate hike before the end of the year.
This shift in tone is significant for Japan, which has spent decades battling deflation and relying on ultra-loose monetary policy. The central bank lifted interest rates out of negative territory earlier in 2025 for the first time in over a decade, but markets have since been waiting for more assertive follow-through. The minutes now suggest a willingness to normalize policy faster, particularly if wage and price pressures continue to climb.
Japanese yen Slumps Despite BoJ Hawkishness
Even with the hawkish shift, the Japanese Yen remained one of the weakest performers across major currencies on Tuesday. A currency heatmap showed JPY declining by 0.38% against the US Dollar, and also losing ground against the Euro (-0.12%), British Pound (-0.31%), and Canadian Dollar (-0.16%).
This underperformance is largely attributed to lingering skepticism around the BoJ’s resolve and pace of tightening, especially when juxtaposed with other global macro dynamics such as the strength of the US Dollar, global risk sentiment, and geopolitical headwinds.
Moreover, Japan’s trade-sensitive economy remains vulnerable to US tariff policy uncertainty, particularly under renewed threats from President Donald Trump’s escalating trade agenda, which has created turbulence across Asia-Pacific markets.
US Dollar Finds Temporary Relief After Recent Losses
The US Dollar Index (DXY) climbed modestly toward 99.00 on Tuesday, rebounding from a weekly low of 98.60. This partial recovery helped bolster the USDJPY pair as the Greenback attracted dip-buying interest amid fading recession fears and persistent geopolitical uncertainties.
The Dollar’s recovery has been modest, however, as market sentiment remains largely bearish on the Fed’s rate trajectory. Traders are aggressively pricing in a September rate cut, with the CME FedWatch tool indicating a 92.2% probability of such a move. This dovish expectation gained traction following the disappointing July Nonfarm Payrolls (NFP) report.
US Labor Market Cooling Sparks Fed Dovish Pivot
The July NFP report showed slower-than-expected job creation, reinforcing views that the labor market is cooling and the Fed’s rate-hike cycle is complete. The data marked the third consecutive month of weaker employment growth and has now cemented expectations of a rate cut as soon as September.
In response, Treasury yields fell across the curve, with the benchmark 10-year yield dipping below 4.00% briefly, adding pressure to the Dollar. However, as yields stabilize and global demand for safe-haven assets remains tepid, the Greenback has managed to stage a modest rebound lending support to USDJPY.
Geopolitical Uncertainty and Safe-Haven Flows Absent
Typically, a weak Japanese Yen would be associated with global risk-on sentiment or rising yields. However, the current market environment has been complicated by lackluster demand for traditional safe havens, including the Yen, even as geopolitical concerns simmer.
Investors are closely monitoring escalating trade tensions, especially with renewed tariff threats from the US. But instead of flocking to the Yen, market participants are showing more interest in Gold and the Swiss Franc, undermining the Yen’s historical status as a safe-haven asset.
Technical Outlook: USDJPY Holds Key Levels
From a technical standpoint, USDJPY has successfully defended the 146.50–146.60 support zone, which coincides with the 20-day Exponential Moving Average (EMA). The rebound toward 147.70 opens the door for a potential retest of the 148.20–148.50 resistance range, which capped upside moves earlier this month.
Momentum indicators on the 4-hour chart suggest bullish bias resumption, with the Relative Strength Index (RSI) climbing back above 55. However, price action will likely remain sensitive to incoming US macro data, especially inflation indicators and Fed speeches.
JPY Under Pressure Across the Board
Here’s a snapshot of the Japanese yen performance against major peers on Tuesday:
Base Currency JPY Performance (%)
USD -0.38%
EUR -0.12%
GBP -0.31%
CAD -0.16%
AUD -0.02%
NZD 0.06%
CHF 0.00%
The data shows JPY trailing significantly, especially against USD, GBP, and EUR reinforcing the notion that Yen weakness is being driven by broader risk and interest rate differentials, rather than domestic policy alone.
Policy Divergence in Spotlight
The contrast between the BoJ’s slow, cautious tightening and the Fed’s likely rate-cutting path is now narrowing the policy gap, but not fast enough to support the Yen. Traders appear reluctant to bet heavily on a stronger JPY until the BoJ delivers action, not just rhetoric.
Meanwhile, the Fed’s pivot to a more dovish posture has capped further Dollar strength, leading to a tug-of-war in USDJPY — where macroeconomic divergences and risk sentiment are continuously being repriced.
What’s Next for USDJPY?
Markets are now turning their attention to several key events:
US CPI data later this week
Comments from Fed officials
Japan’s GDP and wage growth figures
Any new tariff announcements from the Trump administration
If upcoming US data reinforces the slowdown narrative, the Fed is likely to cut rates in September, potentially limiting USDJPY upside. Conversely, any surprise hawkish shift from the BoJ or global risk aversion could revive demand for the Yen.
Conclusion: Yen Weakness Prevails as Markets Wait for BoJ to Deliver
The Japanese Yen continues to underperform despite the BoJ signaling tighter policy ahead. USDJPY’s rebound to 147.70 highlights how market sentiment still favors the Dollar in the short term, especially as Fed rate cut bets coexist with mild risk-on sentiment.
Traders should closely watch for concrete BoJ action and further US economic releases, which will ultimately shape the next leg of the USDJPY trend. Until then, JPY remains on the defensive, and USDJPY is likely to stay supported above 146.50.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Always conduct your own research and consult a professional advisor before making investment decisions.
[sc_fs_multi_faq headline-0=”h2″ question-0=”Why is the Japanese Yen weak despite BoJ’s hawkish stance?” answer-0=”Markets are skeptical that the BoJ will raise rates aggressively. Traders want action, not just talk. Until a rate hike materializes, the JPY remains vulnerable.” image-0=”” headline-1=”h2″ question-1=”Will the Fed cut rates in September 2025?” answer-1=”Yes, markets currently price in a 92.2% chance of a September rate cut, based on CME FedWatch Tool, due to soft labor data and moderating inflation.” image-1=”” headline-2=”h2″ question-2=”What impact does Trump’s tariff policy have on JPY?” answer-2=”Increased trade uncertainty usually supports the Yen. But recent US tariff announcements have sparked risk concerns without boosting JPY demand — highlighting fading safe-haven flows.” image-2=”” count=”3″ html=”true” css_class=””]
