Insights 
VT 
The USD/JPY pair rebounded to approximately 143.30, ending a three-day decline. This rise was attributed to the Japanese Yen’s weaker performance, as its safe-haven appeal lessened following confirmation of upcoming trade talks between the US and China in Switzerland.
US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer announced they would meet Chinese counterparts to discuss economic matters. These talks are aimed at easing the trade tensions rather than securing a comprehensive deal.
Impact On Safe Haven Demand
This development is perceived as a step towards resolving the trade war, reducing demand for safe-haven assets like the JPY. Despite this, the Yen had previously enjoyed demand due to uncertainties over the US-China trade outlook.
Domestically, there’s scepticism about the Bank of Japan raising interest rates, given current global economic uncertainties. Concurrently, the US Dollar is trading around 99.40 in anticipation of the Federal Reserve’s monetary policy announcement.
According to the CME FedWatch tool, traders expect the Fed to maintain interest rates between 4.25%-4.50%. The focus will be on the Fed’s guidance for the year’s remaining monetary policy rather than any immediate rate changes.
We’ve seen USD/JPY snap back to around 143.30 after three consecutive sessions of decline—largely a reaction to diminishing Yen demand rather than any pronounced strength in the Dollar itself. The shift stemmed from easing market anxiety after the announcement of trade discussions set to take place in Switzerland between top American and Chinese officials. Bessent and Greer will be representing Washington, with economic questions on the table but no expectation for a sweeping trade resolution.
Market Expectations And Strategic Considerations
What this has done is reduce the drag that safe-haven flows typically exert on USD/JPY. Notably, the JPY had been bid up previously due to persistent uncertainty in relations between the two largest global economies. A simple acknowledgement that dialogue is in motion was sufficient to unwind some of those defensive positions, especially among macro-focused desks reacting to headline-sensitive sentiment rotations.
At home, Japanese interest rate expectations remain subdued. With economic data providing no solid case for a policy shift and inflation struggling to become self-reinforcing, there’s little appetite domestically to pull away from yield-curve control. This muted outlook for Japan’s monetary stance keeps the downside for USD/JPY fairly well supported, barring external shocks.
On the US side, all eyes now shift to the upcoming policy signals from the Federal Open Market Committee. The Dollar index holding near 99.40 suggests a market that is hesitant to place large directional wagers ahead of the next decision. As per the CME FedWatch tool, the baseline expectation is that rates will stay in the 4.25%-4.50% range. Thus, the bulk of price action will likely hinge on the character and tone of Powell’s forward guidance.
For those of us engaged in options or futures around USD/JPY, attention should rest squarely on implied volatility into next week. With the Fed decision approaching and geopolitical surprises always a risk, front-end vol could see sharp repricing. It may be prudent to look at risk reversals or calendar spreads if directional conviction is limited but a view on timing is clearer.
Additionally, the softening JPY should not be treated as an all-clear for aggressive carry strategies just yet. Rate differentials still favour Dollar strength, but markets tend to reprice aggressively if Fed rhetoric introduces dovish elements. Should Powell signal that policy is peaking, even without confirming cuts, expect Dollar longs—particularly those in momentum-driven hands—to reduce exposure steadily.
We find that hedging short Yen exposure out two to three weeks could be more important than chasing further Dollar upside at this point, particularly as trader positioning enters a more binary phase heading into summer. Better to stay nimble than overcommitted into a stretch of slower macro data and policy re-evaluation.
