The Japanese Yen (JPY) oscillates in a narrow range during the Asian session on Monday and stalls the recent pullback from a multi-month high touched against its American counterpart last week. US Treasury Secretary Scott Bessent did not back President Donald Trump's assertion that tariff talks with China were underway. This keeps a lid on the optimism over a quick resolution of trade tensions between the world's two largest economies and lends some support to the safe-haven JPY.

Meanwhile, traders have pushed back expectations for an immediate interest rate hike by the Bank of Japan (BoJ) due to rising economic risks from US tariffs. However, signs of broadening inflation in Japan keep the door open for more BoJ rate hikes this year, which marks a big divergence in comparison to bets for more aggressive policy easing by the Federal Reserve (Fed). This keeps the US Dollar (USD) bulls on the defensive and also acts as a tailwind for the lower-yielding JPY.
apan's vice Finance Minister for International Affairs and top currency diplomat, Atsushi Mimura, denied a media report that Bessent had told Japanese Finance Minister Katsunobu Kato at a meeting last week that a weak US Dollar and a strong JPY are desirable.
Meanwhile, Bessent said in an X post on Saturday that he had very constructive talks with his Japanese counterpart, fueling hopes for an eventual US-Japan trade deal. This turns out to be another factor acting as a tailwind for the JPY during the Asian session.
Despite high inflation, the Bank of Japan is expected to move cautiously and pause further rate hikes amid concerns that the new US tariffs could shave off 0.5% of Japan's GDP. The BoJ is anticipated to leave rates unchanged at its policy meeting this week.
However, inflation remains above the 2% target for the third straight year and big firms continue to offer bumper pay hikes this year. This gives the BoJ headroom to tighten its monetary policy in 2025, which supports prospects for a further JPY appreciation.

Source: Fxtreet