The Japanese yen rose in Asian markets on Thursday, extending its gains for a second consecutive day against the US dollar. The rebound moved the yen further away from a two-week low, driven by renewed buying at lower levels and comments from Japanese officials regarding the currencys performance in the foreign exchange market.

Expectations for a potential interest rate hike by the Bank of Japan in July have increased following last weeks strong economic data out of Tokyo. Markets now await further indicators on inflation, wages, and unemployment in the worlds third-largest economy.

The Price

The USD/JPY pair fell 0.4% on Thursday to 145.75, down from the days opening level of 146.30, after touching a session high of 146.32.

On Wednesday, the yen had settled up 0.3% against the dollarits first gain in three daysrecovering from the two-week low of 147.18.

Japanese Authorities Comment

Masatsugu Asakawa, Japans former top currency diplomat, told Reuters that Japan is unlikely to face US pressure to deliberately strengthen the yen, despite President Donald Trumps criticisms of the countrys large trade surplus with the US.

Asakawa emphasized that the dollars status as a global reserve currency remains strong. However, it has become more vulnerable to selling pressure after Trumps April 2 announcement of sweeping reciprocal tariffs.

In an interview late Wednesday, Asakawa said a weaker dollar could accelerate inflation in the United Statesa risk he believes Treasury Secretary Scott Bessent is well aware of.

He added that, to his knowledge, there are no specific currency discussions between Bessent and Japans Finance Minister Katsunobu Kato in the context of ongoing trade talks.

Asakawa also noted that predicting the outcome of bilateral trade negotiations remains difficult, particularly as Trump has shown little interest in Japans efforts to secure exemptions on auto tariffs.

Interest Rate Outlook

Last weeks data from Tokyo showed household spending in Japan surged by 4.7% year-on-year in Maythe fastest pace since August 2022. This sharply beat market expectations for a 1.3% increase, after a 0.1% decline in April.

Following the strong spending data, market pricing for a 25-basis-point rate hike by the Bank of Japan in July rose from 40% to 45%.

Investors are now looking to upcoming releases on inflation, wages, and unemployment to further calibrate their expectations for the July policy decision.