The Japanese yen strengthened to around 159 per dollar on Tuesday, recovering recent losses after the Bank of Japan left its policy rate unchanged at 0.75% for a fourth consecutive meeting, in line with market expectations. At the same time, the central bank raised its inflation outlook and lowered its growth forecast for FY2026, citing the economic impact of the Middle East conflict, which is expected to weigh on corporate profits and erode real household incomes.
BOJ Governor Kazuo Ueda remains under close scrutiny as investors look for signals of a gradual policy normalization that could lend support to the yen, which has been pressured by surging oil prices. Further yen depreciation could increase the likelihood of policy tightening if imported inflation accelerates through exchange-rate pass-through effects. Finance Minister Satsuki Katayama also reiterated that authorities remain prepared to intervene in the foreign exchange market at any time.