Japanese Yen (JPY) trims a part of modest intraday gains against its American counterpart, though the near-term bias still seems tilted in favor of bullish traders. Concerns that harsher US reciprocal tariffs could negatively impact Japan's economy, along with a slight improvement in the global risk sentiment, act as a headwind for the safe-haven JPY. However, the growing market acceptance that the Bank of Japan (BoJ) will continue raising interest rates in 2025, amid signs of broadening inflation, might hold back the JPY bears from placing aggressive bets.

Meanwhile, US President Donald Trump's sweeping reciprocal tariffs raise the risk of a global economic slowdown. This should further contribute to limiting any meaningful JPY losses, which, along with the emergence of fresh US Dollar (USD) selling, keeps the USD/JPY pair below the 148.00 mark through the Asian session. Traders ramped up bets that a tariffs-driven US economic slowdown might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. This keeps the USD bulls on the defensive and should further benefit the lower-yielding JPY
Data released on Monday showed that Nominal Wages in Japan rose 3.1% year-on-year in February compared to the previous month's downwardly revised 1.8% increase. Meanwhile, inflation-adjusted real wages contracted 1.2% in February, marking the second consecutive monthly decline and suggesting that high inflation is weighing on earnings.
In fact, the consumer inflation rate the government uses to calculate real wages grew 4.3% year-on-year. This comes on top of positive spring wage negotiations – which resulted in an agreement of 5.47% growth on average and offered a positive signal for the domestic economy – and backs the case for further policy normalization by the Bank of Japan.
Investors remain worried that US President Donald Trump's sweeping reciprocal tariffs will disrupt the global trading system and hit economic activity across the world. Furthermore, Trump upped the ante in his trade war with China and threatened an additional 50% tariff on China if it doesn't withdraw a retaliatory 34% import fee on American products.
This further fuels worries that steep trade barriers around the world's largest consumer market could lead to a recession, which, in turn, assists the safe-haven Japanese Yen to attract some dip-buyers. The US Dollar, on the other hand, stalls a two-day-old recovery move from a multi-month low amid bets for aggressive interest rate cuts by the Federal Reserve.
Fed Chair Jerome Powell said on Friday that the US central bank was well positioned to wait for greater clarity before making changes like rate reductions and added that Trump's tariffs could have a strong inflationary impact. Meanwhile, Trump called for the Fed to cut interest rates as soon as possible, arguing that the US economy is in a strong position.
Moreover, traders are now pricing in a greater possibility that the Fed will resume its rate-cutting cycle in June and deliver at least four rate cuts by the end of this year. This, in turn, would result in the further narrowing of the rate differential between the US and Japan, which suggests that the path of least resistance for the lower-yielding JPY is to the upside.
There isn't any relevant market-moving economic data due for release from the US on Tuesday, leaving the USD at the mercy of trade-related developments and San Francisco Fed President Mary Daly's scheduled speech. The focus, meanwhile, remains on the release of FOMC meeting minutes on Wednesday and US consumer inflation figures on Thursday.

Source: Fxstreet