BoJ’s cautious stance weakens yen amid uncertainty

The Japanese yen retreated as traders reacted to the release of new inflation data.

The latter declined compared to the previous period although it remained slightly above expectations. Core inflation reached 3% in February, down from 3.2% in January.

The Bank of Japan’s decision to keep interest rates unchanged could also continue to weigh on the Japanese currency.

The BoJ maintained a cautious approach regarding potential rate hikes, with Governor Ueda noting that rising food costs and stronger wage growth could drive higher inflation. The central bank stance, alongside uncertainty about rate hikes, has kept the yen under pressure.

Long-term Japanese bond yields remained below their peak, as uncertainty continued regarding monetary policy. The BoJ’s slow pace of tightening has helped keep yields stable this month, providing limited support for the yen in the near term.

Furthermore, global uncertainties, especially U.S. tariff policies, continue to weigh on the yen. The potential for more trade disruptions adds to the currency’s headwinds, leaving it vulnerable in the short term. Without a shift in global trade dynamics or a more hawkish BoJ, the yen is likely to see limited gains.