USD/JPY Holds Steady at 158.37 as Markets Await Japanese Inflation Data

The USD/JPY pair remained stable around 158.37 during Tuesday’s Asian trading session. The yen’s movement continues to be constrained by rising U.S. bond yields, while investors are holding off, awaiting Japanese consumer inflation data due Friday, which may offer fresh clues regarding the Bank of Japan’s (BoJ) future policy direction.

In Japan, Sanae Takaichi—a key political figure—dismissed suggestions that the government is responsible for the yen’s weakness and high interest rates. She stated that the government intends to bolster confidence in the domestic currency by strengthening the economy and managing the issuance of Japanese government bonds (JGBs) in the upcoming fiscal year’s budget.

BoJ Governor Kazuo Ueda also signaled a somewhat hawkish stance, noting that underlying inflation is moving closer to the 2% target. Ueda warned that long-term JGB yields could rise if the market perceives that the BoJ is not adjusting interest rates at an appropriate pace.

Meanwhile, in the U.S., a renewed rise in Treasury yields has provided support for the dollar. Nevertheless, the market largely expects the Federal Reserve to keep interest rates unchanged at its October meeting, though the probability of a hike in December remains high. Consequently, the divergence in monetary policy between the U.S. and Japan continues to be a critical factor for the USD/JPY pair.

Friday’s Japanese inflation data will serve as the next major catalyst. A stronger-than-expected rise in inflation could fuel expectations for a BoJ rate hike and provide support for the yen. Conversely, if inflation fails to show significant strength, the market may conclude that the BoJ’s policy normalization will proceed only gradually.

Newsmaker Analysis: The USD/JPY pair is currently caught in a tug-of-war between high U.S. yields and the potential for monetary tightening by the BoJ. While Governor Ueda’s slightly more hawkish tone offers the yen some room to strengthen, the expectation that the BoJ will raise rates only gradually suggests that any such gains may remain limited. In the short term, Japan’s CPI data and the direction of Treasury yields will be key to the movements of this pair. (asd)

Source: Newsmaker.id