"From the U.S. side, recent economic data indicate that the economy is gradually cooling: inflation continues to ease (2.7%), wage growth is slowing, and the unemployment rate has risen to its highest level in several years (4.6%). These signals reinforce expectations that the Fed is moving closer to a monetary easing cycle in 2026. However, in the near term, the Fed continues to maintain a cautious stance, emphasizing that policy decisions will remain highly data-dependent."
"In contrast, the Japanese yen remains under significant pressure due to the BoJ's monetary policy stance. Although the BoJ has gradually moved away from its ultra-loose policy framework, its current approach remains cautious and insufficient to materially narrow the interest rate differential with the U.S. As a result, the JPY struggles to stage a sustainable recovery in the short term, particularly as carry trade flows remain in place."
"Looking ahead to 2026, the outlook for USD/JPY largely depends on two opposing policy scenarios. In the first scenario, if the Fed begins to ease policy more clearly while the BoJ remains cautious, the interest rate differential would narrow only slowly, placing downward pressure on USD/JPY - though this would likely manifest as a technical correction rather than a sharp trend reversal."
USD/JPY retreated from a peak near 157.9 and is currently trading sideways in a narrow range amid market caution. U.S. data show gradual cooling, with inflation easing to 2.7%, slowing wage growth, and unemployment rising to 4.6%. Those trends support expectations of Fed easing in 2026, although the Fed remains cautious and data-dependent, leaving the dollar lacking directional momentum. The yen stays under pressure because the BoJ has only cautiously exited ultra-loose policy, so the U.S.-Japan interest differential remains wide and carry trades sustain JPY weakness. The most notable short-term risk comes from Japan.
Read at London Business News | Londonlovesbusiness.com
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