The Japanese yen saw some safe-haven inflows during Wednesday’s trading session, supported by a decline in risk appetite across global markets. However, gains remained limited due to ongoing domestic political uncertainty and fading expectations for interest rate hikes by the Bank of Japan. In contrast, the US dollar continues to receive support from expectations that interest rates will remain elevated for an extended period, reinforcing the strength of the USD/JPY pair.
The yen has slightly recovered from its lowest levels since early April against the dollar, but further upside remains constrained. Rising trade tensions and diminishing prospects of an imminent rate cut by the Federal Reserve have weighed on investor sentiment, prompting only modest demand for the yen as a safe haven. At the same time, minor declines in the US dollar have failed to help the USD/JPY pair sustainably break above the 149.00 level.
On the other hand, investors anticipate that the Bank of Japan may refrain from raising interest rates for the remainder of the year, amid concerns about the economic impact of new US tariffs. Moreover, domestic political instability ahead of the House of Councillors elections on July 20 is dampening risk appetite for the yen and limiting strong buying momentum.
Meanwhile, expectations are growing that the Federal Reserve may delay any rate cuts, as US inflation remains resilient. Recent data showed that the US Consumer Price Index rose by 0.3% in June, while the annual rate accelerated to 2.7% from 2.4% in May. Core inflation, which excludes food and energy, climbed to 2.9%. These figures pushed US Treasury yields to their highest levels in several weeks.
In separate comments, several Federal Reserve officials emphasized the need for patience before making any new policy decisions. Boston Fed President Susan Collins noted that the strong economy gives the Fed time to evaluate its next steps, warning that tariffs may further fuel inflation in the second half of 2025. Dallas Fed President Lorie Logan stated that monetary policy needs to remain tight for longer to ensure price stability and cautioned that premature rate cuts could lead to deeper economic damage.
Investors are now closely watching the upcoming release of the US Producer Price Index during the American session, along with fresh statements from Federal Open Market Committee (FOMC) members, both of which are expected to influence the dollar and USD/JPY movements. In this context, economic fundamentals suggest that the USD/JPY pair is likely to maintain a bullish trajectory in the near term.
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