Japanese Yen Posts Modest Gains Against USD Ahead of US CPI Report

Japanese Yen Recovers Slightly, But BoJ Uncertainty Limits Upside

The Japanese Yen (JPY) registered modest intraday gains against the US Dollar (USD) on Tuesday, bouncing from a one-week low. However, the rebound remains limited amid conflicting signals from the Bank of Japan (BoJ) regarding the potential for future rate hikes.

Investors continue to speculate that any aggressive policy tightening from the BoJ might be delayed, as concerns mount over the domestic political landscape and the potential economic fallout from increased US tariffs on Japanese exports. Despite this, the BoJ’s upgraded inflation outlook has offered some support for the Yen, keeping rate hike discussions alive for the end of the year.

Risk-On Mood and Fed Expectations Keep USD/JPY in Check

Meanwhile, the global risk-on sentiment has capped demand for traditional safe havens like the Yen. Simultaneously, dovish expectations around the Federal Reserve’s next moves—with markets increasingly pricing in a rate cut by year-end—have left the US Dollar struggling for direction, helping to keep USD/JPY below recent highs.

This growing divergence in central bank outlooks, with the BoJ potentially leaning toward tightening and the Fed expected to ease, adds a layer of uncertainty to the currency pair's trajectory.

US CPI Inflation Data in Focus

Traders are now turning their attention to the US Consumer Price Index (CPI) report for July, scheduled for release later today. The inflation data is expected to heavily influence short-term USD demand and could determine the pair’s next decisive move. A softer reading would likely strengthen the Yen as it fuels further Fed rate cut speculation.

Until the CPI release, USD/JPY may remain range-bound, with traders cautious and reluctant to make aggressive bets in either direction.