The Japanese yen pared most of its intraday gains against the U.S. dollar on Thursday, as markets digested shifting risk sentiment and central bank expectations. After an initial surge, the yen lost momentum, weighed down by steady U.S. Treasury yields and a resilient dollar index, though bullish sentiment for the yen remains intact.
The yen had gained earlier in the session amid risk-off flows and speculation that the Bank of Japan (BOJ) could take a more hawkish stance in the coming months. However, as investors reassessed their positions, the currency gave back a significant portion of its advance, highlighting ongoing volatility in global markets.
Meanwhile, the U.S. dollar remained supported by expectations that the Federal Reserve will maintain its restrictive monetary stance for longer. While some recent data has hinted at cooling inflation, policymakers have signaled caution, keeping market participants uncertain about the timing of any future rate adjustments. This has limited the yen’s upside, even as broader sentiment around the currency improves.
USD/JPY 1-D Chart as of March 04, 2025 (Source: TradingView)
Despite the pullback, analysts remain optimistic about the yen’s outlook. With speculation growing that the BOJ could adjust its ultra-loose policy, traders continue to position for a potential shift. Any signals of a rate hike or a policy tweak from the BOJ could provide fresh momentum for the yen, especially if the Federal Reserve’s tightening cycle nears its peak.
Market participants are also closely watching geopolitical risks and broader economic trends, both of which could influence yen demand. A spike in safe-haven flows—whether due to financial instability or global uncertainty—could quickly rekindle buying interest in the Japanese currency, making it a key asset to watch in the coming sessions.
For now, the yen’s near-term direction will depend on upcoming economic data and policy statements from both the BOJ and the Fed. Traders remain on alert for any shifts in tone that could drive another round of volatility in the USD/JPY pair, as central banks remain at the center of market movements.
