Yen weakens on slowing safe-haven demand

The Japanese Yen remains on the back foot against its American counterpart, with the USDJPY pair climbing back closer to mid-145.00s during early European trading on Wednesday.

The optimism over the Israel-Iran ceasefire remains supportive of a positive risk tone and acts as a headwind for traditional safe-haven assets.

Moreover, the Summary of Opinions from the Bank of Japan’s June meeting showed that some policymakers called for keeping interest rates steady for the time being due to uncertainty over the impact of US tariffs on Japan’s economy. This, in turn, prompts some selling around the JPY.

Investors, however, seem convinced that the BoJ will hike interest rates further amid signs of broadening inflationary pressures in Japan.

The bets were reaffirmed by Japan’s Services Producer Price Index (PPI), which rose for the third straight month and remained above the 3% YoY rate in May. This could act as a tailwind for the JPY.

Moreover, BoJ board member Naoki Tamura said on Wednesday that inflation rose more than expected back in May and the fog surrounding US tariffs is clearing somewhat, though it is difficult to predict the outlook.

Tamura added that the Japanese central bank may need to act decisively if upside price risks heighten further.

Adding to this, expectations that the Federal Reserve would lower borrowing costs further keep the US dollar bulls on the defensive and might contribute to capping the USDJPY pair.