The Japanese Yen has attracted renewed buying interest, partially offsetting overnight losses. Expectations of further Bank of Japan (BoJ) rate increases and escalating recession concerns are bolstering safe-haven demand for the JPY. A dovish outlook for the Federal Reserve (Fed) is weakening the USD, further pressuring USD/JPY. The JPY maintains a positive trajectory against a broadly weaker USD, keeping USD/JPY below the mid-147.00s. Anticipation of continued BoJ rate hikes in 2025, fueled by indications of broadening domestic inflation, is supporting the JPY. Concerns regarding the potential economic repercussions of US President Trump’s proposed reciprocal tariffs are also contributing to JPY strength. However, anxieties that these tariffs could negatively impact the Japanese economy, coupled with a slight improvement in global risk sentiment, may limit JPY gains. The USD is facing renewed selling pressure amid growing expectations that a tariff-induced US economic slowdown could prompt the Fed to resume monetary easing. This divergence from hawkish BoJ expectations suggests continued upside potential for the JPY and further downside risk for USD/JPY. While tariff-related uncertainty supports the JPY, bullish momentum may be tempered by improved risk appetite.
