The Japanese Yen (JPY) remained weaker against its American rival through the Asian session on Monday (May 12) as fresh optimism over a US-China trade deal continued to undermine the safe-haven asset. Moreover, concerns about Japan's growth outlook amid US tariff uncertainty seemed to weigh on the JPY. The US Dollar (USD), on the other hand, held steady near multi-week highs amid a hawkish Federal Reserve (Fed) pause and easing fears of a recession in the US, which further acted as a tailwind for the USD/JPY pair.

Upbeat Japanese Household Spending data released on Friday boosted the case for further policy normalization by the Bank of Japan (BOJ) and helped limit any deeper losses for the JPY. Moreover, traders seemed reluctant to place any aggressive directional bets and preferred to wait for further details on the US-China agreement. This further helped keep a lid on the USD/JPY pair, which so far, has struggled to find acceptance and build on its strength beyond the 146.00 round-figure mark. This, in turn, warrants caution before positioning for any further JPY depreciation.

The Japanese Yen weakness appears reluctant, preferring to wait for the US-China joint statement on trade talks

US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer said on Sunday that a trade deal has been reached with China. Additionally, Chinese Vice Premier He Lifeng said that the high-stakes meeting made substantial progress and reached important consensus on issues of concern to both countries.

The optimism triggered a fresh wave of global risk-on trade at the start of the new week, which was evident from strong gains around the equity markets and, in turn, weakened the safe-haven Japanese Yen. However, neither side mentioned any agreement to cut US tariffs by 145% on Chinese goods and China's tariffs by 125% on US goods.

Hence, investors may prefer to wait for the US and China's joint statement on trade talks in Geneva later today, which could outline the details and framework of the deal. Chinese Vice Commerce Minister Li Chenggang was quoted as saying that "whenever this statement is released, it will be big news and good news for the world." Meanwhile, the positive developments helped ease market concerns that an all-out trade war could trigger a U.S. recession. Moreover, the Federal Reserve's aggressive signal that it will not cut interest rates anytime soon helped the U.S. dollar remain strong near its highest level since April 10, which it hit on Friday.

Meanwhile, strong Japanese Household Spending data and a third straight month of decline in real wages in March contributed to concerns about broader and more entrenched price increases in Japan. This supports the case for further interest rate hikes by the Bank of Japan, although trade uncertainties are forcing the central bank to adopt a cautious stance. In fact, BoJ Governor Kazuo Ueda admitted that the timeline for underlying inflation to reach the central bank's 2% target has been delayed. However, the minutes of the BoJ's monetary policy meeting held on March 18-19 revealed on Thursday that the central bank remains ready to raise interest rates further if the inflation trend persists.

Investors now look forward to the release of US inflation figures later this week, which, along with Fed Chair Jerome Powell's appearance on Thursday, will influence the USD price dynamics. Apart from this, Japan's Q1 Gross Domestic Product report on Friday would provide some meaningful impetus to the USD/JPY pair. (Newsmaker23)

Source: FXstreet