The Japanese Yen continues to hover near a six-month low against the U.S. dollar as market participants await key economic releases from the U.S. and Japan that could influence upcoming market movements. Next week’s Bank of Japan (BoJ) interest rate decision will be pivotal for the yen’s near-term trajectory. Although a rate hike is widely expected, lingering uncertainty about the central bank’s long-term policy direction continues to weigh on sentiment.

In contrast, the dollar benefits from robust expectations of a hawkish Federal Reserve. Last week’s strong labor data and the upcoming Trump inauguration have driven the greenback to multi-year highs, with fewer rate cuts priced in. This week’s U.S. inflation numbers and remarks from several Fed officials should provide clarity on the 2025 monetary policy outlook. Persistent inflation could support the dollar and treasury yields, while softer-than-expected data may strengthen the yen.

In this regard, the large US-Japan yield differentials could widen further if US economic data shows more strength than expected and the Federal Reserve remain hawkish. While the US 10-year yields retreated from the 4.8% mark, they remain above last year’s high and could react strongly to tomorrow’s inflation data.