Japanese yen slips on risk-on mood

The Japanese yen slipped past 148 per dollar on Wednesday, reversing the previous session’s gains as a global rally in risk assets dampened demand for safe-haven currencies.

The move came on the heels of U.S. inflation data that reinforced market expectations for a Federal Reserve rate cut in September, which weighed on the dollar’s yield advantage but boosted broader risk sentiment, prompting capital to flow out of defensive assets like the yen.

Domestically, sentiment among Japanese manufacturers improved for the second consecutive month in August, buoyed by a landmark trade agreement with Washington.

Under the deal, the U.S. reduced tariffs on Japanese cars and other goods to 15% from higher previous levels, in exchange for a $550 billion Japanese investment package aimed at U.S. infrastructure, technology, and energy projects. The agreement is expected to support Japan’s export sector in the coming quarters, although lingering trade frictions in other areas may limit the overall boost.

On the price front, Japan’s producer price growth eased to an 11-month low in July, highlighting the pressure on domestic firms from the earlier round of higher U.S. tariffs and a still-moderate pass-through of costs to consumers.

This cooling in upstream price pressures may provide some relief to manufacturers but also underscores the challenges of sustaining profit margins in a competitive export market.

Monetary policy remains a point of internal debate at the Bank of Japan. Board members are reportedly divided over the timing and pace of future interest rate hikes. While some policymakers argue for patience, maintaining the current accommodative stance to safeguard the recovery, others caution that delaying too long could risk fueling asset price imbalances or complicating the eventual path toward policy normalization.

The split reflects the uncertainty over whether the BoJ’s growth and inflation projections will fully materialize in the face of external trade risks and a still-fragile domestic demand environment.