Yen Bounces Back Amid Expectations of BoJ Rate Increase

On Tuesday’s European session, the Japanese yen recovered from its early lows against major currencies. Traders are now anticipating that the Bank of Japan (BoJ) will raise interest rates sometime this year.

During a speech at parliament, BoJ Governor Kazuo Ueda stated that if he becomes more confident that underlying inflation is nearing the 2 percent target, the central bank will continue to increase rates. "Once we are convinced that underlying inflation is approaching or staying near 2 percent, we will keep raising rates to tailor our monetary support," he explained.

Meanwhile, economic reports showed that orders for machine tools in Japan have grown for the eighth consecutive month in May. Although orders increased by 3.4 percent year-on-year, the pace has slowed compared to a 7.7 percent rise in the previous month. Foreign orders improved by 6.7 percent compared to last year, but domestic demand dropped by 5.2 percent. On a month-to-month basis, orders fell 11.2 percent after a 13.8 percent decline in April.

European stocks also climbed as U.S.-China trade talks continued in London for a second day, aiming to ease tensions over chip exports and critical minerals. While there was no major breakthrough after the first day of talks, positive comments from both U.S. President Donald Trump and other officials kept the mood optimistic.

In trading today, the yen climbed to a 4-day high of 194.78 against the pound after initially approaching a near 4‑week low of 196.45. The next resistance for the yen is expected around 192.00.

Against the euro and the U.S. dollar, the yen advanced to 164.63 and 144.40 respectively—from early lows of 165.45 (a 7‑month low) and nearly 145.29 (a 2‑week low). Upcoming resistance levels are projected at 157.00 for the euro and 141.00 for the greenback.

The yen also strengthened against the Swiss franc, rising to 175.78 from an early low of 176.30, with a potential resistance near 172.00. It recovered from a near 4‑week low of 94.60 against the Australian dollar by advancing to a 4‑day high of 93.90 and may face resistance around 90.00.

Against the New Zealand and Canadian dollars, the yen pushed up to 87.21 and 105.33, escaping early lows of 87.73 and 105.95 respectively. Should the uptrend continue, resistance is likely near 85.00 versus the kiwi and 103.00 versus the loonie.

Looking ahead, the U.S. NFIB Small Business Optimism report for May and the U.S. Redbook report are scheduled for release during the New York session.