The yen has been the only G10 currency to depreciate against the US dollar since the beginning of June, mainly because after the Bank of Japan's most recent meeting, the market made a more dovish reassessment of its interest rate expectations, according to ING's foreign exchange analyst Francesco Pesole. Tokyo's June CPI data was released this morning. Both core and overall inflation rates were 3.1%, in line with expectations. Although these figures are still higher than the Bank of Japan's tolerance level, they mark a potential turning point and support a more cautious approach to monetary policy tightening. Retail sales data for May also showed a month-on-month contraction. However, the yen still seems to us to have widespread appeal. Our model shows that the USD/JPY is currently trading below its short-term fair value of 144.0, the risk of tariff-related turmoil in July, and the Bank of Japan's limited room to anticipate further dovish repricing, indicating that it is very likely that the low of 142.4 in early June will be retested.

The yen has been the only G10 currency to depreciate against the US dollar since the beginning of June, mainly because after the Bank of Japan's most recent meeting, the market made a more dovish reassessment of its interest rate expectations, according to ING's foreign exchange analyst Francesco Pesole. Tokyo's June CPI data was released this morning. Both core and overall inflation rates were 3.1%, in line with expectations. Although these figures are still higher than the Bank of Japan's tolerance level, they mark a potential turning point and support a more cautious approach to monetary policy tightening. Retail sales data for May also showed a month-on-month contraction. However, the yen still seems to us to have widespread appeal. Our model shows that the USD/JPY is currently trading below its short-term fair value of 144.0, the risk of tariff-related turmoil in July, and the Bank of Japan's limited room to anticipate further dovish repricing, indicating that it is very likely that the low of 142.4 in early June will be retested.