Japanese Yen holds steady near 158.00 as BoJ's Ueda says underlying inflation close to target

The Japanese Yen held steady near 158.00 during the early European session on Monday, as traders reduced Federal Reserve rate hike expectations following strong US inflation data. Bank of Japan (BoJ) Governor Kazuo Ueda stated that underlying inflation is very close to the central bank's 2% target, driven by strong global AI demand and a tight job market.

Ueda cautioned that failing to raise interest rates appropriately could lead to higher long-term bond yields. While many expect the Bank of Japan to keep interest rates unchanged at 1.25%, there are hints of a potential hike to 1.5% by December, according to Reuters. Fed Chair Kevin Warsh provided no clues about future rate decisions, stating they do not prejudge meetings.

Analysts noted a firmer tone from the Bank of Japan, with Ueda's comments suggesting an underlying inflation near the 2% target, supported by tight labor markets and robust global demand. The Japanese Yen benefits from a gradual normalization path, keeping bond yields rising alongside policy rate hikes. The Yen is considered a safe-haven currency, strengthening during times of market stress.