Japanese Yen stays on the back foot despite hawkish BoJ expectations

The Japanese Yen found itself struggling against the US Dollar on Tuesday, despite hawkish expectations from the Bank of Japan (BoJ). The USD/JPY pair traded near the psychologically significant 160.00 mark as the Greenback found itself hindered by a lack of Fed interest-rate hike anticipation. Meanwhile, Middle Eastern tensions kept the monetary policy outlook uncertain.

The US Dollar Index (DXY) held steady at approximately 99.62, recovering from a two-month low of 99.30. Soaring long-term Treasury yields added some support to the USD, with the 10-year yield nearing 4.75% and the 30-year yield surpassing 5.30%. However, moderating US inflation and a widening policy gap between the United States and Japan left little support for the Japanese Yen.

Concerns over government spending and persistent inflation kept traders from fully ruling out a Fed rate hike later in the year. Meanwhile, Iran's top negotiator warned that the Strait of Hormuz would remain closed until the US adheres to the interim agreement, while US President Donald Trump denied any ongoing talks with Iran. Traders remained cautious, as Japanese authorities might intervene should the USD/JPY pair break above 160.00.

The lack of economic data from both the US and Japan in the coming days left the pair largely range-bound.