The Japanese yen retreated from its intraday highs on Wednesday, giving up earlier gains as the US dollar regained strength amid steady Treasury yields and shifting risk sentiment. While the yen initially found support from lingering concerns over potential intervention by Japanese authorities, renewed dollar demand capped its advance.
The greenback’s recovery was fueled by resilient US economic data, which has reinforced expectations that the Federal Reserve may keep interest rates elevated for longer. With inflation still running above target and the labor market holding firm, traders have tempered their bets on aggressive Fed rate cuts, keeping the dollar well-supported against lower-yielding currencies like the yen.
At the same time, Japan’s monetary policy divergence with the US remains a key factor weighing on the yen. The Bank of Japan (BoJ) has only cautiously moved away from its ultra-loose policy, and despite speculation of further tightening, officials have remained measured in their approach. This has kept upward pressure on USD/JPY, limiting any sustained gains for the yen.
USD/JPY 1-D Chart as of February 28, 2025 (Source: TradingView)
Market participants are also closely watching for signs of official intervention, as Japanese policymakers have expressed concerns about excessive yen weakness. However, without clear action, traders remain reluctant to push the currency significantly higher, leading to range-bound movement in USD/JPY.
Broader risk sentiment continues to play a role, with investors balancing geopolitical uncertainties and global growth concerns. The yen typically benefits from risk-off flows, but with Wall Street maintaining stability and risk appetite improving, demand for the safe-haven currency has eased.
For now, USD/JPY remains in a tight range, with the dollar’s strength preventing further yen appreciation. Traders are looking ahead to upcoming US inflation data and Federal Reserve commentary, which could provide further direction for the pair in the coming sessions.
