USD/JPY Rebounds to Near One-Week High Ahead of US Inflation Data

The USD/JPY has rebounded after being oversold and is currently trading in a narrow range, awaiting a stress test. The pair reached a near one-and-a-half-week high at 159.40 during Wednesday's Asian trading session.

The rebound is primarily driven by interest rate differentials, heightened market risk aversion, and shifting expectations regarding U.S. monetary policy. Although the pair declined sharply after coordinated foreign exchange intervention by U.S. and Japanese authorities, markets continue to view the substantial interest rate gap between major global economies as supportive of carry trade demand.

Japanese interest rates remain significantly lower than those of other major economies, leading investors to borrow in low-cost yen to fund higher-yielding assets, limiting the yen's upside potential. Additionally, shifts in Japan's domestic economic policy have heightened concerns about fiscal sustainability.