Yen holds near 40-year lows as markets brace for US CPI

The Japanese yen held steady on Tuesday as traders weighed lingering intervention risks and recent government comments on pension fund allocations, while the broader dollar paused ahead of a pivotal US inflation report and remarks from Federal Reserve Governor Christopher Waller.

Dollar Firm Before Key Data

USD/JPY hovered around 162.38 in Asian trading on Tuesday, with the yen giving up modest early gains as market participants awaited the June US Consumer Price Index data due July 15. The dollar index eased 0.04% to 101.23, holding near recent highs as elevated oil prices linked to Middle East tensions kept inflation concerns alive.wtvbam+1

Waller's recent comments added a hawkish tilt to market expectations. The Fed governor said the central bank may need to consider raising interest rates if the next core inflation print comes in strong, with market-implied odds of a rate hike at the September 2026 meeting climbing to 50% from 44%. The Fed currently holds rates at 3.50%–3.75%.bingx+1

GPIF Proposal Offers Limited Yen Support

The yen drew some support last week after Finance Minister Satsuki Katayama said the government would pursue measures to encourage pension funds, including the Government Pension Investment Fund, to "make substantially greater investments in Japanese financial assets". The remarks, made at a press conference on July 10, briefly pushed the yen as much as 0.6% stronger to around 161.46 per dollar and drove long-dated bond yields lower.reuters+2

However, analysts noted that the GPIF's rigid governance structure limits the immediate impact. The fund, which holds 293.4 trillion yen ($1.8 trillion) in assets, follows a strategic allocation reviewed only once every five years — with the next scheduled review not until 2030. The Japan Times News Corp ↗ 1.04% reported that the GPIF is likely to resist political pressure in the short term, as its statutory mandate requires investment decisions to be justified on return grounds rather than policy objectives.japantimes+1

Intervention Shadow Looms

The yen remained pinned near 40-year lows, with the currency having weakened steadily as the wide interest-rate gap between the US and Japan persists. Japan's Ministry of Finance deployed a record ¥11.73 trillion in foreign-exchange intervention during April and May 2026 to slow the yen's decline, and traders remained alert to further action around current levels.lazardassetmanagement+2

With the Bank of Japan's policy rate at just 1.00% against the Fed's 3.50%–3.75%, the carry trade incentive continues to weigh on the yen. Most Asian currencies traded in narrow ranges on Tuesday as markets positioned for the US inflation release, which could determine whether the Fed moves closer to another rate increase later this year.wtvbam+2