- USD/JPY is expected to retreat after gaining over 2% in the prior session.
- The latest summary from the Bank of Japan reveals ongoing uncertainty and differing opinions among policymakers regarding future policies.
- The U.S. Lieutenant Governor noted that tariffs could pose both positive and negative risks to Japan’s inflation outlook.
USD/JPY is projected to experience a pullback following its more than 2% gain in the previous session, trading around 147.90 during Asian trading hours on Tuesday. The pair is losing ground as the Japanese Yen (JPY) makes gains despite ongoing uncertainties surrounding the Bank of Japan’s (BOJ) interest rate outlook.
The BOJ’s Lieutenant Governor acknowledged the mixed risks associated with potential U.S. tariffs, indicating that these could stress the Japanese economy. He further mentioned that Japan’s economic growth might slow before gradually rebounding, contingent on a recovery in the foreign economy.
Deputy Governor Uchida pointed out wage increases attributed to a tight labor market, suggesting companies may have to absorb higher labor costs.
Japan’s Finance Minister, Colonel Fish, commented on Tuesday about engaging in discussions on foreign exchange and possibly ongoing tariff negotiations with U.S. Treasury Secretary Scott Bescent. He expressed a close watch on Japan’s role in the U.S.-China tariff debate but refrained from discussing currency levels.
A summary from the BOJ’s Monetary Policy Conference held from April 30th to May 1st emphasized persistent uncertainty as a key concern. One member noted that central banks are likely to continue increasing interest rates in response to economic and inflationary improvements. Another member stressed the importance of maintaining the current rate hike stance while indicating that the fee remains deeply negative amid careful risk assessments. There was also caution expressed regarding U.S. trade policies and how increasing tariffs could significantly affect Japan’s economic outlook and inflation path.
Over the weekend, the U.S. and China agreed to hold off on implementing sudden triple-digit tariffs as part of trade negotiations. This temporary truce is expected to offer some short-term relief to the markets ahead of the resumption of the planned “mutual” tariff schedule in 90 days.
Looking ahead, traders are set to focus on the April U.S. Consumer Price Index (CPI) report due on Tuesday. A rebound in headline inflation is anticipated, moving from a previous -0.1% to 0.3% monthly, while Core CPI is also forecasted to rise from 0.1% to 0.3%. Year-over-year figures for both indicators are expected to remain stable.
