The Japanese (JPY) weakens across the board on Tuesday, assisting the USD/JPY pair to reverse the previous day's slide to over a one-week low and climb back to mid-145.00s during the Asian session. A surprise downgrade of the US government's credit rating on Friday appeared to have a modest impact on the global risk sentiment. This is evident from a generally positive tone around the equity markets, which is seen as a key factor undermining demand for the safe-haven JPY.

Any meaningful JPY downfall, however, seems elusive in the wake of the growing acceptance that the Bank of Japan (BoJ) will raise interest rates again in 2025. In contrast, the Federal Reserve (Fed) is expected to lower borrowing costs further amid signs of easing inflationary pressures and a sluggish growth outlook. This, in turn, might keep a lid on any attempted US Dollar (USD) move higher and act as a tailwind for the lower-yielding JPY, which, in turn, should cap the USD/JPY pair.

Bank of Japan Deputy Governor Shinichi Uchida said on Monday that Japan's underlying inflation is likely to re-accelerate after a period of slowdown and that the central bank will keep raising interest rates if the economy, prices improve as projected.

Moreover, the BoJ's Summary of Opinions from the last meeting revealed that policymakers haven't given up on hiking interest rates further, and some board members saw scope to resume rate hikes if developments over US tariffs stabilise.

Source: Fxstreet