The Japanese Yen regained some ground against the US Dollar on Thursday after experiencing losses overnight, as traders adjusted their positions following recent weakness. However, experts suggest that the yen’s upside potential may remain constrained, with key factors continuing to pressure the currency.
The recovery followed a period of selling pressure, driven by expectations of higher interest rates in the US. The growing gap between US and Japanese yields has been a significant factor behind the yen’s decline, as the Federal Reserve’s tightening policy contrasts sharply with the Bank of Japan’s more accommodative approach. This has led to sustained demand for the US dollar, keeping the yen subdued.
Despite the short-term recovery, analysts warn that the yen’s strength could be fleeting. With the US dollar continuing to benefit from expectations of future rate increases, the yen’s gains may be limited, particularly if Japan’s inflation remains low and the Bank of Japan sticks to its current monetary policy.
Investors are also watching for any shifts in global risk sentiment and geopolitical factors that could impact demand for the yen as a safe-haven asset. However, as long as the US dollar stays strong, it is unlikely the yen will see significant appreciation without a major change in market dynamics. With both economic data and central bank decisions being closely monitored, the USD/JPY pair is expected to remain volatile, and any further yen gains could be capped unless Japan’s economic outlook improves significantly.
