USD/JPY Drops to Two-Week Low as Japanese Yen Gains on Safe-Haven Demand

USD/JPY Falls to Two-Week Low as Japanese Yen Gains on Safe-Haven Appeal

The Japanese Yen (JPY) extended its strength during Thursday’s European session, with the USD/JPY pair falling to a near two-week low, driven by broad-based US Dollar (USD) weakness and renewed safe-haven demand for the JPY. Growing expectations that the Bank of Japan (BoJ) will pursue further monetary tightening amid persistent inflation in Japan added further momentum to the Yen's gains.

Japanese Yen Finds Support on BoJ Rate Hike Expectations

The JPY is experiencing sustained buying interest as market participants factor in additional rate hikes from the BoJ, following recent inflation trends. Persistent domestic inflationary pressure has lifted speculation that the BoJ will continue normalizing monetary policy, distinguishing it from other major central banks considering rate cuts.

Trump-Powell Tensions Add Fuel to Dollar Weakness

USD/JPY faced added downward pressure amid renewed political risks in the US. Reports that President Donald Trump is preparing to replace Federal Reserve Chair Jerome Powell have rattled market confidence and raised concerns over the Fed’s long-term independence. The resulting loss of credibility and uncertainty surrounding future rate policy has driven the USD to a more than three-year low against major currencies.

Eyes on Inflation Data from the US and Japan

Traders are now awaiting key inflation figures from both Japan and the US, set to be released on Friday. These datasets could provide crucial guidance for future monetary policy actions from both the Fed and BoJ, and may set the tone for the next directional move in USD/JPY.

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