### USD/JPY Movement Recent data from the United States shows a decline in consumer sentiment but a surprise rise in short-term inflation expectations. Consumers now expect inflation to increase by 7.3% over the next year, highlighting ongoing cost-of-living pressures in the U.S. Usually, the Yen strengthens during global uncertainty. However, weak domestic data puts its long-term strength at risk. If Japan’s situation worsens and inflation falls, the Yen may be sold off further, especially if the Federal Reserve sticks to its current policy. ### Currency Heat Map The analysis indicates that USD/JPY exchange rate movements are affected by two main themes: weaker economic data from Japan and rising inflation expectations in the U.S. Although a 0.22% increase in the currency pair seems small, recent volatility suggests deeper trends that could begin to dominate the market soon. Japan’s economy shrank by 0.2% in the first quarter compared to the previous quarter and by 0.7% year-over-year. This marks a significant change after a year of modest growth and aligns with known weaknesses in consumer behavior and trade—factors that can hinder central bank decisions. Softer data makes it too early to bet on changes in Japanese yields. From the Federal Reserve’s perspective, the focus is not just on interest rate policy, but also on the recent jump in inflation expectations, now at 7.3% among consumers. This figure will not be overlooked by policymakers. Any new evidence of persistent inflation—whether from surveys or CPI data—could impact talks about rate changes in the near future. We don’t expect immediate shifts, but markets will closely watch for comments on Monday. This contrasting situation—soft data from Japan versus persistent inflation in the U.S.—creates a compelling trend. The Yen, often a safe haven during global market volatility, risks more decline if domestic confidence falters. With inflation in Japan slowing without strong action from the Bank of Japan, traditional protective long positions are losing effectiveness. Looking beyond the USD/JPY pair, the broader currency landscape shows the U.S. Dollar gaining significantly against the Swiss Franc. This hints that demand for Dollars isn’t solely linked to the Yen but has broader implications. Monitoring the gap between inflation expectations and yield curves will help clarify if this momentum can continue. Immediate focus should be on how Monday’s Fed communications might affect market volatility. Rate traders will be closely watching if headline inflation rises while Japan remains in contraction. Create your live VT Markets account and start trading now.

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