The Japanese yen extended gains for a second session, supported by stronger-than-expected core inflation data in Japan that has renewed expectations of further Bank of Japan (BoJ) rate hikes.
Tokyo’s core consumer price index rose 3.6% year-on-year in May, the fastest pace in more than two years, pointing to persistent inflationary pressures.
BoJ Governor Kazuo Ueda reaffirmed the bank’s commitment to its 2% inflation target. This firm stance has lent support to the yen as markets increasingly price in a rate increase in July.
Meanwhile, the yen found additional backing from safe-haven demand following a U.S. appeals court’s decision to reinstate reciprocal tariffs introduced by the Trump administration, heightening trade tensions.
Should inflation prove persistent and wage growth durable, further monetary tightening appears likely, which would support the currency. However, economic difficulties and trade uncertainties may restrain the pace of tightening, limiting the yen’s appreciation. Safe-haven flows linked to global trade tensions may also intermittently strengthen the yen.
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