Japanese Yen Slips as BoJ-Fed Policy Divergence Boosts USD/JPY

Japanese Yen Struggles as Diverging BoJ-Fed Policies Support USD/JPY Recovery

June 3, 2025 – Forex Market Update

The Japanese Yen (JPY) remains on the defensive against a recovering US Dollar (USD) during Tuesday’s European session. The currency pair USD/JPY edged higher, supported by renewed strength in the greenback and persistent divergence in monetary policy outlooks between the Bank of Japan (BoJ) and the Federal Reserve (Fed).

BoJ Policy Outlook Keeps JPY Under Pressure

Despite expectations for gradual policy normalization from the BoJ, the JPY is struggling to gain traction. BoJ Governor Kazuo Ueda recently reaffirmed a cautious but ongoing tightening path during his comments in parliament. While Japan’s inflation continues to broaden, calls for the central bank to slow its bond tapering beyond fiscal 2026 are raising concerns over policy execution.

These developments signal challenges in withdrawing the BoJ's long-standing monetary stimulus, which weakens investor confidence in a strong JPY rebound.

Fed Easing Expectations Offer Limited Support to JPY

Meanwhile, the Federal Reserve is widely expected to begin interest rate cuts in 2025, a view that typically favors lower USD demand. However, the lack of near-term dovish action from the Fed, coupled with today’s mild USD rebound, is helping lift USD/JPY.

This policy divergence between a cautious BoJ and a data-dependent Fed is key to understanding the current market bias.

Risk Sentiment and Geopolitical Influence

A broadly positive risk tone across global markets also reduces demand for the safe-haven JPY. However, lingering geopolitical tensions, including the Russia-Ukraine conflict and rising trade friction, still offer some underlying support to the Yen.