Insights 
VT 
The Japanese Yen continues its decline against the US Dollar, with the USD/JPY pair rising about 0.35% and trading near 146.00. This movement is happening despite hotter-than-expected inflation in Japan and a subdued Greenback, supported by stable US Treasury yields.
US Treasury yields have given the US Dollar a slight advantage over the Yen, with the 10-year note yield reaching 4.43%. Mixed US economic data includes the Philadelphia Fed Manufacturing Index at -4.0, indicating ongoing challenges in manufacturing due to cooling labour demand, with the employment index dipping negative.
Federal Reserve Report
The Federal Reserve Report presents a mixed US economic view, considering ongoing inflation and the impact of tariffs. The Fed’s commitment to a data-driven policy, with potential future rate cuts, supports US Dollar resilience against lower-yield peers.
Japan’s CPI rose 3.5% in May, with Core CPI at 3.7%, raising questions about the Bank of Japan’s next steps. BoJ Governor Kazuo Ueda suggests cautious policy adjustments, aiming to reach a 2% inflation target.
The BoJ’s historical ultra-loose policy increased the Yen’s depreciation. Following policy shifts, the Yen remains weaker due to continued high inflation and salary growth in Japan, partly reversing in 2024 when the BoJ abandoned its previous stance.
What we’ve seen recently is the Japanese Yen losing further ground against the US Dollar, even as Japanese inflation prints came in stronger than forecast. The USD/JPY pair has edged higher, hovering around the 146 mark. This has occurred despite indicators that would typically offer more backing to the Yen. Meanwhile, US Treasury yields—especially on the 10-year notes—have steadied around 4.43%. That stability alone may be giving the Dollar slight breathing room, acting as a counterbalance to otherwise softening momentum.
Looking At The Economic Data
Looking at the economic data coming out from the United States, it hasn’t signalled either clear strength or declining activity. Take the Philadelphia Fed Manufacturing Index, for instance. It posted a reading of -4.0, suggesting that production sentiment is still under pressure. Add to that the decline in the employment sub-index—this further underscores a cooling labour market. However, this softness hasn’t pushed Treasury yields lower, and that’s what’s keeping the Dollar from slipping.
On the policy front, the Federal Reserve remains tied to incoming data. Recent commentary points to openness to rate cuts, though that path depends on inflation behaving. Tariffs are also weighing on decisions, and the inflation picture in the US is still uneven. Nevertheless, with rate differentials still favouring the US, the Dollar holds an edge over currencies offering lower yields.
Now shifting focus to Japan: Consumer inflation rose in May, with year-on-year headline CPI climbing to 3.5% and Core CPI hitting 3.7%. That might normally suggest that tightening measures could follow. Yet, we heard from Ueda that the Bank of Japan is not in a rush. The priority remains achieving a sustained 2% inflation rate under conditions they consider stable. The market appears to be digesting this pace—deliberate yet noncommittal in how fast or slow further revisions may come.
The Yen’s long-standing undershoot has roots in Japan’s previous hold to ultra-loose policy. Even as the BoJ shifted its posture earlier this year, the effects are still trailing. High domestic inflation and wage movement haven’t anchored the currency. Instead, the pairing with US yield strength continues to pressure it downward.
So, where does this leave us? We are watching a firm interest-rate gap favouring the Dollar, and policy language indicating no hasty reaction from Tokyo. The inflation data might be stirring questions, but without matching signals from the BoJ, the Yen finds little footing. Traders could view such resistance near 146 as soft, especially if incoming data from the US or Japan fails to provide any sharp deviation.
One area to monitor is salary data and purchasing power within Japan, which could shape future moves. Should higher wages feed into sustainable inflation, the BoJ might feel more confident tightening later in the year. Still, we’ve seen little in the way of guidance supporting imminent changes.
Overall, as the weeks unfold, this positioning could translate into fading volatility within this currency pair, provided there are no surprises. That said, fixed income remains a key driver. Watching UST curves and BoJ commentary will give the clearest clues, especially around events where policy language may be more candid.
