Yen strengthens as traders delay Fed rate hike expectations

The Japanese yen edged higher on Tuesday as traders pared back expectations for imminent U.S. Federal Reserve interest rate hikes, lifting the currency from recent lows.

The yen’s advance followed a reassessment of Fed policy expectations, with investors scaling back bets on near-term rate increases amid softer U.S. economic data and cautious central bank commentary. The dollar-yen pair fell to session lows, reflecting reduced demand for higher-yielding assets tied to U.S. policy tightening.

Market pricing indicated a reduced probability of a Fed rate hike by the end of the year, with traders citing concerns over economic growth and labor market softening. The shift in sentiment contributed to a modest strengthening of the yen, which has struggled against the dollar in recent weeks amid divergent monetary policy outlooks between the U.S. and Japan.

The yen’s movement underscored the sensitivity of currency markets to shifts in global interest rate expectations, particularly as traders weigh the balance between U.S. inflation dynamics and growth risks. Analysts noted that further yen appreciation would likely depend on sustained changes in Fed policy expectations or unexpected adjustments in Japanese monetary policy.

The dollar was last trading at 155.80 yen, down 0.2% on the day, while the yen’s broader trade-weighted index showed a modest gain.