Yen remains under pressure as soft inflation and energy risks support the Dollar

USD/JPY is still trading near 159.30, leaving the pair close to the 160.00 area that previously triggered Japanese intervention. The BoJ's current policy setting remains at around 0.75%, and its next meeting is scheduled for 15-16 Jun, so the rate gap with the US remains a key source of support for the US dollar.

On the Japan side, the latest inflation data does not yet give the Yen much relief. Apr core CPI rose 1.4% YoY, while the measure excluding fresh food and fuel rose 1.9%, both pointing to cooler price momentum and leaving Jun hike expectations more uncertain than the market would like. Reuters also noted that analysts still expect the energy shock tied to the Middle East to lift price pressures again in the coming months.

In the US, inflation is still firm enough to keep the dollar supported. Apr CPI rose 3.8% YoY, with energy prices up 17.9% from a year earlier, which keeps the higher-for-longer argument alive even as growth fears have become more visible. Today's BEA release also showed PCE rising 0.50% in Apr, which suggests domestic demand has not rolled over sharply enough to remove inflation pressure from the equation.

Geopolitics remains an important part of the FX story, but the market is now reacting less to abstract intervention risk and more to the way energy prices feed into inflation and rate expectations. The BoJ said it needs to pay particular attention to the Middle East situation, while Associated Press reported that Japan remains heavily exposed to oil imported from the region. That means any credible easing in energy stress would likely help the yen, but for now the pair still looks biased to stay elevated unless US yields soften or Japan's inflation momentum re-accelerates.