The Japanese Yen (JPY) extended its winning streak against a weakening US Dollar (USD) for the fourth consecutive day on Thursday, rising to its highest level in over two weeks during the Asian session. The recent announcement of a trade agreement between the US and Japan has eased fears of economic fallout from higher tariffs and revived expectations of another interest rate hike by the Bank of Japan (BoJ) later this year—boosting investor demand for the Yen.
Despite domestic political instability and a weaker-than-expected Manufacturing PMI report, JPY bulls remain firmly in control. The upbeat market sentiment driven by improving trade relations has not deterred investors from seeking the safe-haven Yen. Combined with a broadly weaker USD, which remains under pressure amid ongoing uncertainty surrounding the Federal Reserve’s rate trajectory, the USD/JPY pair continues to trend lower, breaking below the 146.00 mark.
BoJ Rate Hike Bets Rise as Economic Uncertainty Eases
The US-Japan trade deal has removed a significant economic risk for Japan, improving prospects for a more stable recovery. In response, BoJ Deputy Governor Shinichi Uchida reiterated that the central bank remains open to further rate hikes if economic growth and inflation align with forecasts. Supporting this view, a Reuters poll showed that a majority of economists expect at least one more BoJ rate hike by year-end, even though most believe the central bank may pause at this month’s meeting.
Political & Economic Headwinds Fail to Deter Yen’s Ascent
Japan’s ruling coalition—comprising the Liberal Democratic Party and its junior partner Komeito—faced a setback in last weekend’s upper house elections, adding uncertainty around fiscal policy. Meanwhile, a private-sector survey revealed that Japan’s manufacturing sector slipped into contraction territory in July, with the S&P Global Manufacturing PMI falling to 48.8 from 50.1 in June. This weakness was partially offset by stronger services activity, which rose to 53.5 from 51.7.
Even with these mixed domestic signals, the Yen remains supported by global dynamics. The safe-haven appeal of the JPY continues to attract investors amid questions over the Federal Reserve’s independence. President Trump’s repeated criticism of Fed Chair Jerome Powell and calls for lower interest rates have intensified, with US Treasury Secretary Scott Bessent hinting that a new Fed Chair nominee could be announced by early 2026.
Eyes on US Data and ECB Decision for Market Cues
Traders are now turning attention to the US economic calendar, which includes Weekly Initial Jobless Claims, flash PMI readings, and New Home Sales data—all of which could influence short-term USD movements. Additionally, the European Central Bank’s rate decision later today may add to broader market volatility and impact safe-haven flows, potentially influencing the next move in the USD/JPY pair.
