Japanese Yen Holds Firm Near One-Week High Amid Weak US Dollar and BoJ Rate Hike Bets

The Japanese Yen (JPY) continues to trade with a bullish bias against the US Dollar (USD), holding near a one-week high around the USD/JPY 144.80 zone in Wednesday’s Asian session. While a stable risk sentiment stemming from the Israel-Iran ceasefire limits safe-haven inflows, a combination of softer US Dollar and rising Japanese inflation expectations keeps the Yen supported.

✅ Key Drivers Supporting the Japanese Yen

• Broad-based USD Weakness: The greenback remains subdued as markets increasingly expect the Federal Reserve (Fed) to initiate rate cuts later in 2025.
• Rising Inflation in Japan: Japan’s Services Producer Price Index (PPI) rose 3.3% YoY in May, fueling speculation of further BoJ rate hikes.
• Cautious Fed Signals: Fed Chair Jerome Powell reinforced a cautious stance, avoiding any immediate signals for rate cuts despite previous dovish hints from other Fed officials.
• Ceasefire in Middle East: The temporary truce between Israel and Iran eases market tensions but leaves underlying geopolitical risks intact — a subtle support for the Yen’s safe-haven appeal.

🏦 BoJ Policy Outlook: Rate Hike Expectations Build

The Bank of Japan’s Summary of Opinions revealed a split view among policymakers, with some advocating a wait-and-see approach due to tariff-related uncertainties. However, persistent inflation pressure — especially in core metrics excluding volatile components — strengthens the market’s conviction that the BoJ may raise rates again.

• National Core CPI (May): 3.3% YoY
• Services PPI (May): 3.3% YoY — Third consecutive month above 3%

These inflation readings remain above the BoJ’s 2% target, supporting a policy tightening narrative.

📉 USD/JPY Technical Analysis: Bias Tilts Bearish Below 145.00

Technically, USD/JPY has broken below the 200-hour Simple Moving Average (SMA) and the key 145.35–145.25 support zone, signaling further downside potential:

🔻 Bearish Scenario:

• Break below 144.50 could open the door toward 144.00, followed by 143.65 and possibly sub-143.00 support.

🔺 Bullish Scenario:

• Recovery attempts may stall near 145.00 and 145.35.
• A sustained move above 146.00 could trigger a short-covering rally toward 146.70.

🧠 Market Outlook: Diverging Central Bank Policies in Focus

The policy divergence between the BoJ and the Fed remains a core theme driving USD/JPY flows. While US rate cut bets grow amid weak consumer confidence and mixed economic signals, Japan’s inflation resilience and tightening bias offer support to the Yen.

Investors are advised to monitor:

• Powell’s Congressional testimony
• Further developments in the Israel-Iran ceasefire
• Upcoming inflation data from both Japan and the US

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