Japanese Yen Strength Holds on BoJ Hawkishness and Weak USD

Japanese Yen Bullishness Continues Amid Hawkish BoJ Outlook and Weak US Dollar

The Japanese Yen (JPY) extended its resilience at the start of the European session on Monday, recovering from a fresh monthly low against the US Dollar (USD) around the 142.20–142.25 zone. Although the USD/JPY pair bounced slightly, broader market sentiment still favors the JPY amid several supporting factors.

Among them are growing expectations of a potential US-Japan trade agreement and increasing bets that the Bank of Japan (BoJ) may continue to normalize its ultra-loose monetary policy. Market participants are now pricing in further BoJ interest rate hikes, which contrasts starkly with the dovish outlook for the US Federal Reserve.

The divergence between the BoJ’s hawkish trajectory and the Fed’s anticipated rate cuts in 2025—combined with heightened concerns about the US’s fiscal health—has dragged the US Dollar to a one-month low at the start of the new week. Additionally, global political tensions continue to support safe-haven assets like the Japanese Yen.

However, recent comments from US President Donald Trump delaying tariffs on the European Union (EU) have temporarily dampened risk aversion and weakened safe-haven demand, allowing USD/JPY to recover modestly.

Traders are exercising caution, as despite the recovery in USD/JPY, the underlying bearish pressure on the Dollar remains. Analysts suggest waiting for sustained buying interest before concluding that the pair has found a near-term bottom.