Yen Under Siege: Interest-Rate Differentials Fuel Dollar Surge

The Japanese yen remains under pressure as interest-rate differentials continue to drive currency markets. The spread between US and Japanese two-year government bond yields stands at around 2.81 percentage points, making dollar-denominated assets more attractive to investors.

This yield advantage is expected to persist due to the Federal Reserve's restrictive monetary policy, which has reinforced expectations of a sizeable yield premium for the US. The Bank of Japan is also expected to maintain tight policy as inflation remains above its target and wage growth becomes more durable.

The outlook for USD/JPY remains bullish, with buyers continuing to step in on pullbacks. The recent move back above 161.90 suggests the market is testing the upper end of its recent range near 164.00. However, a break below this level could challenge the broader uptrend.