04:36 AM EDT, 06/13/2024 (MT Newswires) -- The Japanese yen underperformed all other major currencies in early European trade on Thursday as US government bond yields and the US dollar both recovered from prior losses, aided by a hawkish Federal Reserve policy update.

USD/JPY was quoted 0.30% higher around 157.26, making the yen the worst-performing G10 currency, after fully reversing losses that had seen it trade as low as 155.70 ahead of Wednesday's Fed policy update.

Yesterday's sell-off was reversed alongside much of the decline in front-end US government bond yields after the Fed cut the number of interest rate cuts projected for this year to just one, and raised its estimate of the long-run neutral rate to 2.8%.

The Fed acknowledged that "modest further progress" returning inflation to the 2% target has been made in recent months but reiterated that it doesn't expect to cut rates until it gains greater confidence in the return to the target.

Previously, USD/JPY had fallen heavily alongside the two-year US yields after inflation fell to zero on a MoM basis in May, weighing on the annual rate and leading markets to bet with greater confidence that interest rates will be cut soon.

Wednesday's hawkish revision to the dot-plot saw the US dollar pairing losses broadly with USD/JPY rallying even in the face of widespread declines for equity markets in North America, Asia and Europe, and favorable data from Japan.

The Ministry of Finance said overnight that Japanese investment in foreign bonds fell more than 2.64 trillion yen in the week ending June 8, while investment by foreigners in Japanese stocks also fell some 346 billion yen.