Insights 
VT 
USD/JPY saw a decrease, trading around 147.90, after a previous session with over 2% gains. This change occurred amid ongoing uncertainty related to the Bank of Japan’s (BoJ) interest rate outlook.
BoJ Deputy Governor Shinichi Uchida pointed to potential US tariffs affecting Japan’s economy. He noted expected slower economic growth, with a gradual recovery anticipated.
Rising Wages and Inflation Concerns
Uchida also mentioned rising wages, suggesting companies might pass on higher labour costs, possibly affecting inflation. Japanese Finance Minister Katsunobu Kato discussed plans to meet US Treasury Secretary Scott Bessent regarding foreign exchange and tariffs.
The BoJ’s recent policy meeting highlighted persistent uncertainty and differing views among policymakers. Concerns were raised about the potential impact of US trade policies on Japan’s economic outlook.
The US and China have agreed to pause imposing high tariffs as part of preliminary trade discussions, providing temporary market relief. Meanwhile, traders are eyeing the upcoming US Consumer Price Index (CPI) report, with expected rises in both headline and core CPI figures.
The Japanese Yen, one of the most traded currencies, is influenced by various factors, including the BoJ’s policy. Its role as a safe-haven investment means it’s valued during market stress.
Yen as a Safe Haven Asset
The dip in USD/JPY to around 147.90, following the previous day’s rally, reflects a pushback against the sharp moves sparked by monetary policy divergence. The small drop shows a recalibration more than a reversal, triggered as some of the recent optimism around Japanese policy normalisation was checked by the BoJ’s forward guidance, which remains cautious.
Deputy Governor Uchida’s remarks underline the fragility of Japan’s economic rebound. He clearly flagged the potential drawbacks of new trade barriers, particularly from the United States. The mention of possible spillover effects on exports wasn’t headline-grabbing, but for those of us watching for policy adjustments, it offered another reason to moderate expectations of aggressive tightening from the BoJ. The talk of stronger wages sounds positive at first glance, but with companies looking to pass costs to consumers, inflationary pressure could become less transitory than policymakers might assume it to be. This raises questions about timing and magnitude of any future rate adjustments.
Finance Minister Kato’s plan to meet with Bessent also reveals something else—tensions about the yen’s depreciation are not localised to domestic circles. When such high-level diplomatic meetings appear around currency and tariff subjects, it hints at preparatory steps being taken for possible intervention or coordinated policy talks, even if unofficially.
The BoJ board remains split, and that matters. Some members are still pointing to stable inflation being quite some distance away, despite rising prices in recent prints. That internal divide adds another layer of complexity for those trying to gauge Japan’s likely timing on further moves. It suggests no meaningful shift is likely without firm data to settle the dispute.
On the US side, the delay in further tariffs with China offers stability, but only in the short term. Such temporary truces reduce immediate volatility, though we shouldn’t rely on them to signal an end to broader uncertainty, especially with inflation still sticky. The upcoming CPI data will play an outsized role, particularly with expectations for stronger core inflation. If the US prints stronger-than-forecast numbers, rate expectations could shift again, bringing further rate premium to USD positions. That, naturally, could weigh on JPY.
The yen, being a traditional safe-haven choice, tends to react not just to Japan’s fundamentals, but also to broader market risk sentiment. In times of geopolitical or financial market stress, it traditionally strengthens, acting as a counterbalance to the global equity picture. At the same time, when risk appetite returns and carry trades gain favour, it finds itself on the backfoot.
Looking ahead, short-term positioning may need adjusting. The market had arguably priced in too much optimism around a BoJ pivot. With that now appearing less imminent, some retracement in yen strength is understandable. We have to weigh upcoming macro releases—with CPI at the top—and listen carefully to both US and Japanese policymakers for further clues. The tone and timing of follow-up statements, particularly if coordinated, could impact how much interest rate asymmetry remains embedded in FX pricing.
