Japanese Yen Softens Against US Dollar Despite Safe-Haven Demand

Japanese Yen Dips Slightly vs. USD Despite Rising Safe-Haven Demand

The Japanese Yen (JPY) came under mild pressure on Friday, retracing from its recent one-week highs against the US Dollar (USD). Although the risk-off environment—driven by escalating geopolitical tension and trade uncertainty—should benefit the safe-haven Yen, USD/JPY still edged higher due to broader Fed-BoJ policy divergence.

BoJ Holds, But Normalization Expectations Remain

The Bank of Japan (BoJ) is widely expected to keep its benchmark interest rate steady at 0.5% in next week’s policy meeting. However, investors continue to price in long-term policy normalization as domestic inflation in Japan expands. This undercurrent remains a supportive factor for the Yen.

Global Risk Aversion: A Tailwind for JPY?

A surge in Middle East tensions and uncertainties around US President Trump's trade stance have raised investor demand for lower-risk assets. Typically, this benefits currencies like the Yen. Yet, in this case, the stronger USD on temporary rebound momentum has capped JPY's upside.

Related: USD/CAD Bounces on Safe-Haven Flow Despite Oil Spike

Fed Expectations May Weigh on the USD

US inflation has shown signs of slowing, reinforcing expectations that the Federal Reserve could deliver interest rate cuts in 2025. This could limit further upside in the USD and reintroduce support for JPY over the medium term.

Outlook

The broader policy gap between the BoJ and Fed, alongside geopolitical developments, will be crucial in determining the next directional move in USD/JPY. For now, caution is advised before initiating new long positions in the pair amid mixed signals.