USD/JPY declines as Yen strengthens on safe-haven demand, BoJ hawkish tone

• The Yen strengthens against the US Dollar, supported by safe-haven demand and intervention fears from Japanese authorities.
• Speculation about an upcoming rate hike by the Bank of Japan fuels market volatility.
• Expectations of a hawkish Federal Reserve limit the US Dollar's downside.

The USD/JPY pair declines on Tuesday to around 153.50 at the time of writing, down 0.40% on the day, as the Japanese Yen (JPY) attracts fresh safe-haven flows amid renewed global risk aversion. Fears of potential intervention from Japan's Ministry of Finance and the recent hawkish tone from Bank of Japan (BoJ) Governor Kazuo Ueda lend further support to the JPY. Ueda hinted last week that a rate hike could come by the end of this year or early next year, reinforcing expectations of a gradual policy shift by the BoJ.

However, the Japanese Yen's upside remains limited. Uncertainty over the exact timing of the next BoJ rate increase persists, particularly as Japan's new Prime Minister, Sanae Takaichi, is expected to pursue expansionary fiscal policies. Such a stance could prompt the central bank to proceed cautiously to avoid derailing economic growth.

In the United States, investors remain focused on the Federal Reserve (Fed) outlook. Recent comments from Fed Chair Jerome Powell, emphasizing the need to maintain a restrictive stance amid inflation still above 2%, support the US Dollar Index (DXY), which hovers around 100.00 on Tuesday. Markets now assign roughly a 70% chance of a 25-basis-point rate cut in December, down from more than 90% a week ago, according to the CME FedWatch tool.

Against this backdrop, attention turns to Wednesday's ADP Employment Report, which will provide an early gauge of private-sector hiring trends in the United States (US). With the prolonged US government shutdown delaying official labor statistics, traders are relying on the private payroll data to reassess monetary policy expectations and the next direction for USD/JPY.