The Japanese yen has slipped in recent sessions, trading around 142.7 per US dollar, as softer-than-expected industrial production and retail sales data weighed on sentiment. However, this near-term weakness masks a potentially supportive medium-term backdrop for the yen. The Bank of Japan is widely expected to maintain its policy rate at 0.5% in its upcoming meeting, but rising inflation is reinforcing expectations of a rate hike as early as in July. With core inflation rising to 3.2% in March, market participants increasingly expect the BOJ to begin a gradual tightening cycle that could see rates approach 1.25% by 2026.

While recent comments from US Treasury officials hinted at progress in bilateral trade discussions, the Trump administration’s new tariffs have cast a shadow over Japan’s export outlook. The BOJ remains cautious, with policymakers focused on the potential impact of trade friction and global growth headwinds on Japan’s fragile recovery. However, the yen may find sustained support as yield differentials with the US narrow, especially if the Fed pauses rate hikes or moves toward easing later this year.

In the near term, USD/JPY may remain range-bound as safe-haven demand waxes and wanes with broader market risk sentiment. But the medium-term trajectory favours a stronger yen, supported by hawkish BOJ expectations, firming domestic inflation, and potential unwinding of carry trades. Technical levels to watch include resistance near 143.50 and key support at the 140.00 handle. Should US economic data soften and BOJ rhetoric remain firm, USD/JPY could trend lower toward 138.00 in the coming months.