Ella 
The yen retreated from six-month highs on Tuesday as unwinding of carry trades slowed. However, the yen strengthened against the US dollar (USD) on growing expectations that the Bank of Japan (BoJ) may further tighten monetary policy.
The Bank of Japan raised its short-term interest rate target by 15 basis points, in a range of 0.15%-0.25%. Separately, the central bank announced a plan to cut monthly purchases of Japanese government bonds (JGB) to 3 trillion yen starting in the first quarter of 2026.
USD/JPY’s upside potential may be limited as expectations grow for a 50 basis point interest rate cut by the U.S. Federal Reserve in September. The CME FedWatch tool shows a 74.5% chance that the Fed will cut interest rates at its September meeting, up sharply from 11.4% a week ago.
