The Japanese Yen weakened during the Asian session after the Bank of Japan raised its policy rate by 25 basis points to 1%, a move that had been widely anticipated by markets. The currency briefly recovered some ground before giving up part of its early advance, with EUR/JPY rebounding from an intraday low near 185 to trade around 186. The pair remained slightly above Monday’s closing level as investors assessed the implications of the central bank’s latest tightening step.
The rate increase came amid concerns that inflationary pressures remain elevated, supported in part by higher energy costs linked to tensions in the Middle East. Attention now turns to the Bank of Japan’s next policy signals, which are expected to be delivered by Deputy Governor Shinichi Uchida while Governor Kazuo Ueda remains hospitalized. Market participants are looking for guidance on whether the central bank is prepared to continue normalizing policy in the months ahead.
The EURO also found support against several major counterparts as expectations grew that the European Central Bank may need to maintain a restrictive stance for longer. That view persisted even after confirmation of a peace arrangement between the United States and Iran and the reopening of the Strait of Hormuz, a key route for a large share of global energy shipments.
Comments from ECB policymakers reinforced the hawkish tone. Joachim Nagel, president of the Deutsche Bundesbank, said inflation relief is unlikely to arrive soon and that it may take months for oil supply conditions to normalize. He also pointed to the risk of second-round inflation effects and left open the possibility of further action at the July meeting. Martins Kazaks separately indicated that the ECB may need to tighten again if necessary, while warning that inflation risks remain tilted to the upside.
Later in the day, market focus will shift to Germany’s June ZEW survey, a closely watched gauge of investor sentiment and economic expectations. The data may help shape views on the outlook for the EURO area’s largest economy and, by extension, the ECB’s policy path.The USD/JPY pair edged lower in Asian trading on Tuesday after two consecutive days of gains, holding near 160. The yen found support after the Bank of Japan lifted its short-term policy rate by 25 basis points to 1%, a move that matched market expectations and followed the conclusion of its two-day policy meeting.
The BoJ’s decision reinforced the view that Japanese policymakers are prepared to continue normalizing monetary policy after years of ultra-low rates. That backdrop helped the yen stabilize, limiting further upside in USD/JPY even as the pair remained near historically elevated levels.
At the same time, the US dollar continued to draw some support from a cautious market mood tied to developments in US-Iran peace talks. Investors are waiting for clearer details on any agreement, with both Washington and Tehran yet to publish an official text. Shipping companies have reportedly been slow to reroute vessels through the strategic waterway until the terms are fully transparent.
US President Donald Trump said a memorandum of understanding had been signed to end the conflict and reopen the Strait of Hormuz, but traders have remained skeptical. Reports from Iranian media suggest the draft framework would allow the strait to reopen within 30 days under Iranian arrangements, adding to the uncertainty around the timing and enforcement of any deal.
Attention now turns to the Federal Reserve, which is expected to leave its benchmark rate unchanged at 3.50% to 3.75% at its meeting on Wednesday. Market participants will focus on the policy statement and the press conference for clues on how new Fed Chair Kevin Warsh plans to steer the central bank through the next phase of monetary policy.
