Anna 
During the early European session on Tuesday, the Japanese Yen (JPY) continued its downward trajectory, reaching a fresh 34-year low against its American counterpart. This decline comes amidst the Bank of Japan’s (BoJ) dovish outlook, as the central bank refrained from providing guidance on future policy steps or the pace of policy normalization after terminating negative interest rates in March.
Furthermore, a report on Monday suggested that the BoJ would shift towards a more discretionary approach, placing less emphasis on inflation and allowing various data to guide future rate hike decisions. This shift is perceived as a significant factor contributing to the ongoing depreciation of the JPY. Coupled with continued US Dollar (USD) buying, the USD/JPY pair rose to levels just above the mid-154.00s.
The latest US macroeconomic data indicated persistent inflation and a resilient economy, leading investors to revise their expectations for the first interest rate cut by the Federal Reserve (Fed) from June to September. This delay suggests that the substantial interest rate differential between the US and Japan will persist, potentially driving flows away from the JPY and supporting the USD/JPY pair’s near-term appreciation.
However, JPY bears remain cautious following recent warnings by Japanese authorities regarding potential intervention in the market to bolster the domestic currency. Additionally, the escalating crisis in the Middle East is expected to limit losses for the safe-haven JPY and act as a cap on the currency pair’s movement.
