The Japanese yen traded around 149.5 per dollar on Tuesday, holding near its highest level in 12 weeks, supported by firm expectations that the Bank of Japan (BOJ) will continue raising interest rates this year.
Japanese yen almost firm against US dollar
Market sentiment has been driven by upside surprises in fourth-quarter inflation, reinforcing the view that Japan’s central bank is moving closer to ending its ultra-loose monetary policy. Investors are now closely watching a series of key economic reports set for release on Friday, including data on industrial production, retail sales, and Tokyo inflation, all of which could provide further insights into the BOJ’s next steps. Stronger-than-expected data could fuel speculation of a rate hike sooner than anticipated, while weaker figures may prompt a reassessment of the bank’s tightening trajectory.
Geopolitical tensions helped the Japanese currency
Beyond domestic factors, the yen also benefited from safe-haven flows amid ongoing geopolitical and trade uncertainties. Tensions escalated on Monday after US President Donald Trump announced that tariffs on Canada and Mexico "will go forward" following the one-month delay period, adding to concerns about disruptions in global trade. Additionally, reports that the US is increasing restrictions on China’s semiconductor industry have contributed to risk-off sentiment, prompting investors to seek refuge in the yen.
Bond market role
Meanwhile, bond market movements are also playing a role in yen dynamics. The spread between US and Japanese government bond yields remains a key driver of currency movements, with traders closely watching whether BOJ policy adjustments will narrow the gap between US and Japanese interest rates. If the BOJ signals a more aggressive path toward policy normalization, it could lead to further yen appreciation. However, given the yen’s recent strength, markets are also wary of potential intervention by Japanese authorities, as policymakers have previously stepped in to curb excessive currency volatility. As a result, volatility in the yen is expected to remain elevated in the coming weeks as traders weigh domestic policy shifts against broader global economic uncertainties.
