Yen Struggles to Sustain Gains Amid Persistent Headwinds

USD/JPY has been stuck in a tight range for over a week, unable to sustain its gains from the July intervention by Tokyo and Washington. The yen has lost roughly half of its appreciation since then, weighed down by persistent fundamental headwinds.

The Japanese currency is still under pressure due to a wide interest rate differential, rising fiscal risks, and elevated energy and import costs. However, markets are increasingly pricing in a Bank of Japan rate hike in September to support the yen and contain inflation.

Core machinery orders rose 9.7% in June, exceeding forecasts and providing further support for expectations of tighter policy while signaling robust business capital expenditure.