The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and for now, seems to have stalled the previous day's retracement slide from over a one-week high. The Bank of Japan's (BoJ) Tankan survey showed that Japanese enterprises raised their inflation forecasts for one year, three years, and five years ahead. This, in turn, backs the case for more rate increases from the BoJ and turns out to be a key factor supporting the JPY. Moreover, a modest US Dollar (USD) downtick keeps the USD/JPY pair depressed below the 150.00 psychological mark.
The JPY bulls, however, lack conviction amid a positive turnaround in the global risk sentiment, which tends to undermine the safe-haven currency. Apart from this, receding expectations that the BoJ would raise the policy rate at a faster pace, amid worries about an economic slowdown on the back of US tariffs, act as a headwind for the JPY. Nevertheless, the BoJ's hawkish outlook still marks a big divergence in comparison to bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon. This, in turn, suggests that the path of least resistance for the lower-yielding JPY remains to the upside.
The US Dollar, on the other hand, continues with its struggle to attract any meaningful buyers amid concerns that Trump's trade tariffs would dent economic growth. Furthermore, the global flight to safety and expectations of multiple rate cuts from the Federal Reserve drag the US Treasury bond yields lower. The resultant narrowing of the US-Japan rate differential lends additional support to the lower-yielding JPY during the Asian session on Tuesday.
Traders now look forward to this week's important US macro releases, scheduled at the beginning of a new month, starting with the JOLTS openings and ISM Manufacturing PMI on Tuesday. This will be followed by the ADP report on Wednesday, the US ISM Services PMI on Thursday, and the closely-watched US Nonfarm Payrolls (NFP) on Friday. This will play a key role in influencing the USD and provide some meaningful impetus to the USD/JPY pair.
Source: FXStreet
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