The Japanese Yen (JPY) is trading weaker against the US Dollar (USD) on Friday, as geopolitical tensions and central bank policy divergence drive market flows.

USD/JPY has staged a modest rebound, trading above 144.00 at the time of writing, as demand for the safe-haven US Dollar picks up.

Reports of Israeli strikes on Iranian nuclear facilities have lifted geopolitical risk, supporting the USD and weighing on the Yen.

Meanwhile, expectations that the Bank of Japan (BoJ) will leave interest rates unchanged at its upcoming meeting on Tuesday have further limited JPY gains.

While BoJ Governor Kazuo Ueda previously signaled the possibility of a rate hike in response to rising domestic inflation, recent economic data suggest Japan's recovery remains fragile. Industrial production has slowed, and Japan's export-sensitive manufacturing sector is struggling under the pressure of steep US tariffs on steel, aluminium, and automobiles, key contributors to Japan's Gross Domestic Product (GDP).

The University of Michigan released its preliminary Consumer Sentiment survey for the United States on Friday, indicating a noticeable increase in confidence among US households.

Meanwhile, both the one-year and five-year Consumer Inflation Expectations indices edged lower, with the one-year outlook falling to 5.1% from 6.6% and the five-year outlook decreasing to 4.1% from 4.2%. This echoed the softer

than-expected readings of the Consumer Price Index (CPI) and Producer Price Index (PPI) reports earlier in the week, which have raised expectations of a rate cut by the Federal Reserve in September.

However, with the Fed widely expected to hold rates steady in both June and July, and the BoJ showing little urgency to tighten further, current interest rate differentials remain supportive of USD/JPY upside in the near term.

Source: Fxstreet