Japanese Yen weakens vs. USD as fiscal woes offset BoJ rate hike bets ahead of FOMC Minutes

USD/JPY regains positive traction as expectations for more stimulus from Japan revive fiscal concerns.
Bets that the BoJ will stick to its policy tightening path could limit the JPY losses and cap spot prices.
Dovish Fed expectations might hold back the USD bulls from placing fresh bets ahead of FOMC Minutes.

Haresh Menghani FXStreet

The USD/JPY pair attracts fresh buyers following the previous day's volatile price swings and climbs above mid-153.00s during the Asian session on Wednesday. However, a combination of factors keeps spot prices below the weekly high set on Tuesday as traders now look forward to the FOMC Minutes for some meaningful impetus.

Japan's softer Q4 GDP report released earlier this week puts more pressure on Japan's Prime Minister Takaichi to announce more stimulus after her landslide victory. Meanwhile, the International Monetary Fund (IMF) warned against cutting the consumption tax, saying that it would erode Japan's fiscal space and raise debt risks. Apart from this, expectations that Takaichi will push back against further interest rate hikes by the Bank of Japan (BoJ) undermine the safe-haven Japanese Yen (JPY).

Furthermore, a generally positive risk tone, bolstered by easing geopolitical tensions amid signs of progress in US-Iran nuclear talks, dents the JPY's safe-haven status. This, along with a modest US Dollar (USD) uptick, assists the USD/JPY pair in regaining some positive traction. Meanwhile, investors remain hopeful that Takaichi could be fiscally responsible and that her policies will boost the economy. This might prompt the BoJ to stick to its policy normalization path and limit JPY losses.

Moreover, the IMF urged Japan to keep raising interest rates to keep inflation expectations well anchored. Adding to this, the Reuters Tankan poll showed Japanese manufacturers' confidence rose for the first time in three months in February. Moreover, government data revealed that Japan's exports rose 16.8% YoY in January, marking the fastest rate since November 2022. This might hold back the JPY bears from placing aggressive bets and cap any further gains for the USD/JPY pair.

The USD, on the other hand, might struggle to attract meaningful buyers amid the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs several times this year. Traders might also opt to wait for the FOMC Minutes, which, along with the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, would provide more cues about the Fed's rate-cut path. This, in turn, will drive the USD and provide a fresh impetus to the USD/JPY pair.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

EUR/USD stays defensive below 1.1600 as USD rebounds

EUR/USD trades marginally lower below 1.1600 in the European session on Friday. The pair edges down as the US Dollar rebounds slightly after Thursday’s massive profit-taking pullback. Looming US-Iran uncertainty revives the haven demand for the Greenback, while the Euro takes a breather after the hawkish ECB hike-led rally.

GBP/USD keeps losses around 1.3400 after UK GDP data

GBP/USD trades on the back foot around 1.3400 in the European trading hours on Friday. The UK Gross Domestic Product (GDP) declined by 0.1% in April, keeping the offered tone intact around the British Pound amid a broad US Dollar rebound.

Gold sticks to losses amid Iran peace deal doubts and hawkish Fed bets

Gold attracts some sellers near the $4,246-$4,247 region during the Asian session, stalling the previous day's solid recovery move from its lowest level since November 2025. Mixed signals regarding a potential US-Iran peace deal revive demand for the safe-haven US Dollar.

Pi Network: Bulls attempt comeback as bearish strength fades

Pi Network (PI) is trading at around $0.120 after a modest recovery the previous day. Despite this recent rebound, traders should be cautious as a scheduled unlock of 14.8 million PI tokens on Friday could limit the token's recovery potential by increasing market supply. Meanwhile, the technical outlook is showing early signs of fading bearish momentum, suggesting a short-term bounce.

U.S. economic outlook: The Warsh era starts with a great debate

Warsh is starting his tenure at the Fed during a transition of sorts. Given the prior FOMC statement and the countless Fed speakers we’ve heard from since then, it seems Fed officials are in the midst of shifting toward a more neutral policy stance.

4.2% headline, 0.2% core: Why the Fed's next hike may be targeting the wrong problem

May's CPI put headline inflation at 4.2% on the year, up from 3.8% in April and the hottest reading since April 2023, while core prices rose just 0.2% on the month, undershooting the 0.3% consensus and halving April's pace.