USD/JPY weakened after posting a more than 2% gain in the previous session, trading around 147.90 during Asian trading hours on Tuesday (5/13). The currency pair depreciated as the Japanese Yen (JPY) strengthened despite lingering uncertainty over the Bank of Japan (BOJ) interest rate outlook.

BOJ Vice Governor Shinichi Uchida acknowledged both upside and downside risks stemming from potential US tariffs, noting that such measures could weigh on the Japanese economy. He added that Japan's economic growth is expected to slow to its potential level before gradually recovering, assuming overseas economies recover.

Vice Governor Uchida also pointed to wage gains driven by a tight labor market, suggesting that companies are likely to continue to pass on higher labor costs, which could support underlying inflation and inflation expectations over time.

Japanese Finance Minister Katsunobu Kato commented on the possibility of a meeting with U.S. Treasury Secretary Scott Bessent on Tuesday to discuss foreign exchange issues and possible ongoing tariff negotiations. He reiterated that Japan will closely monitor U.S.-China tariff discussions, though he refrained from commenting on the currency level.

The Bank of Japan's (BoJ) Summary of Opinions from its April 30–May 1 monetary policy meeting highlighted persistent uncertainty as a key concern. One member indicated that the central bank is likely to continue raising interest rates in line with improvements in the economy and inflation. Another stressed the need to maintain the current rate-hike stance, noting that real interest rates remain deeply negative, while calling for careful risk assessment. A separate member expressed concerns about U.S. trade policy, warning that increased tariffs could have a significant impact on Japan's economic outlook and inflation trajectory.

The U.S. and China agreed over the weekend to halt the imposition of high triple-digit tariffs as part of preliminary trade talks. The temporary truce provided short-term relief to markets ahead of the U.S.'s planned "reciprocal" tariff schedule that is set to resume in 90 days.

Moving forward, traders are focused on the upcoming US Consumer Price Index (CPI) report for April, due later on Tuesday. Headline inflation is expected to rebound to 0.3% month-on-month from -0.1% previously, while core CPI is also expected to rise to 0.3% from 0.1%. Year-on-year figures for both measures are projected to remain steady. (Newsmaker23)

Source: Fxstreet