The Japanese Yen (JPY) retains its bullish bias for the second straight day against a broadly weaker US Dollar (USD) and drags the USD/JPY pair back closer to the 145.00 psychological mark during the Asian session on Wednesday. Investors continue to take refuge in traditional safe-haven assets, including the JPY, amid concerns about a tariffs-driven global recession. Adding to this reports that US President Donald Trump has agreed to meet Japanese officials to initiate trade discussions fuel optimism about a possible US-Japan trade deal, which further underpins the JPY.

Meanwhile, investors now seem convinced that the Bank of Japan (BoJ) will raise interest rates further in 2025 on the back of broadening domestic inflation. This marks a big divergence in comparison to bets that a tariffs-driven US economic slowdown might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. This continues to exert downward pressure on the US Dollar (USD) and suggests that the path of least resistance for the lower-yielding JPY remains to the upside. Traders now look forward to the release of FOMC meeting minutes for a fresh impetus
Japanese Yen is underpinned by sustained safe-haven demand, hawkish BoJ expectations
Mounting worries that US President Donald Trump's sweeping tariffs would push the US, and possibly the global economy, into recession this year have led to an extended sell-off in equity markets worldwide. In fact, the S&P 500 registered its steepest four days of losses since the 1950s after Trump unveiled sweeping reciprocal tariffs late last Wednesday.
Japan's Prime Minister Shigeru Ishiba and Trump agreed to keep dialogue open to address the pressing levy issues. Moreover, Trump told reporters that we have a great relationship with Japan and we're going to keep it that way. This fuels optimism about a possible US-Japan trade deal, which lends additional support to the safe-haven Japanese Yen.
Investors have pared their bets that the Bank of Japan will hike interest rates at a faster pace amid concerns about the potential economic fallout from Trump's trade tariffs. However, BoJ Deputy Governor Shinichi Uchida said last Friday the central bank will keep raising interest rates if the chance of underlying inflation achieving its 2% target heightens.
Meanwhile, investors now seem convinced that a tariffs-driven US economic slowdown would put pressure on the Federal Reserve to resume its rate-cutting cycle. According to the CME Group's FedWatch Tool, the markets are currently pricing in over a 60% chance that the US central bank will lower borrowing costs at the next policy meeting in May.
Moreover, the Fed is expected to deliver five interest rate cuts by the end of this year despite expectations that Trump's tariffs will boost inflation. This, in turn, weighs on the US Dollar for the second straight day and keeps the USD/JPY pair within striking distance of its lowest level since October 2024 touched last Friday.
Traders now look forward to the release of FOMC meeting minutes, due later during the US session this Wednesday. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, might provide cues about the Fed's rate-cut path. This, in turn, will drive the buck and USD/JPY.

Source: Fxstreet