Japanese Yen approaches weekly high against a broadly weaker USD

• The Japanese Yen attracts fresh buyers following the previous day's modest decline.
• The USD slumps to over a three-year low and exerts additional pressure on USD/JPY.
• Traders now look forward to key inflation figures from Japan and the US on Friday.

The Japanese Yen (JPY) regains positive traction against a broadly weaker US Dollar (USD), dragging the USD/JPY pair back below the 145.00 psychological mark during the Asian session on Thursday. The Bank of Japan (BoJ) - although it has been hesitant to raise interest rates - is still expected to stay on the path of monetary policy normalization as inflation persistently exceeds its target. In contrast, the Federal Reserve's (Fed) latest projections and dot plot suggest two rate cuts before the year-end, marking a significant divergence in comparison to hawkish BoJ expectations. This is seen as a key factor benefiting the lower-yielding JPY.

Meanwhile, US President Donald Trump's fresh threat that he is considering replacing Fed Chair Jerome Powell fuels concerns about the central bank's independence. This overshadows the latest optimism over the Israel-Iran truce and tempers investors' appetite for riskier assets, which further underpins the JPY's safe-haven status. Moreover, the Trump-Powell standoff drags the USD to its lowest level since March 2022 and contributes to the offered tone surrounding the USD/JPY pair. Traders now look to the final US Q1 GDP print for some impetus ahead of key inflation figures from Japan and the US, due for release on Friday.

Japanese Yen benefits from a weaker USD and the divergent BoJ-Fed policy expectations

• The Bank of Japan signaled a cautious approach to unwinding its long-standing ultra-loose policy and decided to slow the pace of reduction in its bond purchases from fiscal 2026. However, the incoming data from Japan points to a consistent rise in inflationary pressures and keeps hopes alive for more rate hikes by the BoJ.
• In fact, Japan's core inflation has remained well above the BoJ's 2% target for well over three years and rose to a more than two-year high in May. Moreover, Japan's Corporate Services Producer Price Index - a leading indicator of consumer price inflation - has been trending above the 3% YoY rate for several consecutive months.
• Meanwhile, Federal Reserve Chair Jerome Powell, testifying before Congress, acknowledged that recent inflation readings had been more moderate, but he warned that new tariffs could change that. Powell added that he expects policymakers to stay on hold until they have a better handle on the impact of tariffs on consumer prices.
• Powell's position on interest rates is increasingly at odds with US President Donald Trump, who ramped up his criticism of the central bank chief and floated the idea of firing him. When asked if he is interviewing candidates to replace Powell, Trump said he has three or four people in mind as contenders for the top Fed job.
• Nevertheless, traders are still betting that the Fed will lower rates by at least 50 basis points before the end of the year and are also pricing in a roughly 20% chance of a rate reduction in July. This, in turn, drags the US Dollar to over a three-year low and the USD/JPY pair closer to the weekly trough during the Asian session.
• A ceasefire between Israel and Iran appears to be holding for now, which might continue to underpin the global risk sentiment and cap traditional safe-haven assets, including the Japanese Yen. Traders now look to the release of the final Q1 GDP, though the focus will be on key inflation figures from Japan and the US on Friday.

USD/JPY bears await a break below 200-SMA on H4 near 144.70

The overnight failure ahead of the 146.00 mark and a subsequent break below the 200-period Simple Moving Average (SMA) on the 4-hour chart, currently around the 144.70-144.65 region, will be seen as a key trigger for the USD/JPY bears. Given that oscillators on hourly/daily charts have just started gaining negative traction, spot prices might then accelerate the fall towards the 144.00 round figure en route to the 143.70-143.65 region before eventually dropping to test sub-143.00 levels.

On the flip side, any attempted recovery back above the 145.00 psychological mark is more likely to attract fresh sellers near the 145.25-145.35 static barrier and remain capped near the 146.00 mark. The latter should act as a pivotal point, which if cleared could shift the near-term bias in favor of bulls and lift the USD/JPY pair to the 146.65-146.70 region en route to the 147.00 round figure. The momentum could extend further towards the 147.45-147.50 hurdle before the pair makes a fresh attempt to conquer the 148.00 mark.