HG MARKETS:

The Japanese Yen (JPY) remains under modest pressure against the US Dollar (USD), although its decline is somewhat limited due to a complex mix of economic and geopolitical factors. Optimism surrounding the easing of US-China trade tensions is encouraging a risk-on sentiment in the markets, thereby reducing demand for safe-haven currencies like the JPY. This shift in investor sentiment has weakened traditional safe-haven assets during the Asian trading session on Wednesday.

Despite this, expectations that the Bank of Japan (BoJ) may resume its rate-hiking cycle after last week’s dovish pause are helping to cushion the Yen’s losses. Additionally, ongoing geopolitical tensions are also lending some support to the JPY. On the other hand, the US Dollar has struggled to find strong buying interest ahead of the Federal Reserve’s policy decision, as market participants adopt a cautious approach, awaiting clear signals on the direction of future interest rates.

Trade talks are also in focus this week, with US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer scheduled to meet Chinese Vice Premier He Lifeng in Switzerland. Bessent’s recent comments suggesting potential trade deals with major partners have boosted investor confidence and contributed to further weakening of safe-haven demand, including for the Yen. In response, the USD/JPY pair has rebounded, climbing back above the 143.00 level after a brief dip to a one-week low.

The Federal Reserve is widely expected to keep interest rates unchanged at the conclusion of its two-day policy meeting. As such, market participants will closely scrutinize the Fed’s policy statement and Chair Jerome Powell’s comments for clues about the timing and pace of future rate cuts. Any signals pointing to a more dovish or cautious Fed could significantly influence the USD’s short-term direction and, by extension, USD/JPY movement.

Meanwhile, geopolitical concerns remain elevated. A Kremlin spokesman has warned of immediate retaliation if Ukraine continues hostilities, and Israel’s security cabinet has approved an expanded military campaign in Gaza aimed at gradually seizing control. These developments are keeping risk sentiment in check and may help prevent deeper losses for the Japanese Yen, given its role as a geopolitical hedge during times of uncertainty.