USD/JPY fluctuates as Yen firms on BoJ rate-hike bets, USD steadied by Fed outlook

• USD/JPY range-bound near 153.50 in post-holiday trade.
• BoJ rate-hike expectations keep the Yen firm across the board.
• Reduced near-term Fed easing bets lend underlying support to the US Dollar.

The Japanese Yen (JPY) trades little changed against the US Dollar (USD) on Tuesday, with USD/JPY seeing two-way price action as traders return following the long US Presidents’ Day weekend. At the time of writing, USD/JPY is hovering near 153.40, after touching an intraday low around 152.70.

However, the pair lacks strong follow-through, as the Greenback struggles to extend its recovery, with structural headwinds continuing to weigh on broader sentiment.

Meanwhile, the Japanese Yen remains firmly bid across the board, supported by growing optimism around Prime Minister Sanae Takaichi’s pro-stimulus policy agenda and strengthening expectations that the Bank of Japan (BoJ) could raise interest rates in the coming months.

US economic data offered the Greenback modest support earlier in the day. The NY Empire State Manufacturing Index rose to 7.1 in February, beating market expectations of 6.0, though easing slightly from the previous 7.7 reading. Meanwhile, the ADP Employment Change four-week average climbed to 10.3K, up from a revised 7.8K (previously reported as 6.5K)

The US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six major currencies, is trading near 97.24, easing from an intraday high of 97.54.

Even so, fading near-term Federal Reserve (Fed) interest rate-cut expectations keep the Greenback broadly supported following its recent bout of weakness, as traders reassess the timing of policy easing after last week’s US labour market and inflation data.

US Nonfarm Payrolls (NFP) increased by 130K in January, rebounding sharply from December’s revised 48K gain, while the Unemployment Rate edged lower to 4.3% from 4.4%. Headline CPI rose 0.2% MoM, easing from 0.3% in December. On an annual basis, inflation moderated to 2.4% YoY, down from 2.7%.

Fed Governor Michael Barr said earlier in the day, “I want to see more evidence that inflation is moving back to our 2% target.” He added that “it is prudent for the Fed to take time and look at the data before changing policy again,” noting that recent figures “indicate a stabilizing job market.”

Markets are currently pricing in two rate cuts this year, with the probability of a third move gradually increasing. That said, the latest dot plot from the December FOMC meeting signalled only one rate cut in 2026. According to the CME FedWatch Tool, traders are widely anticipating the first rate reduction to come as early as June.

Looking ahead, Japan’s economic calendar remains relatively light this week, with attention centred on Friday’s National Consumer Price Index (CPI) report. In the United States, traders will closely monitor the release of the Fed’s January Meeting Minutes on Wednesday for further clarity on the monetary policy stance.

Focus will then shift to the core Personal Consumption Expenditures (PCE) Price Index, along with the advance estimate of fourth-quarter US Gross Domestic Product (GDP) due on Friday.