• USD/JPY drifts lower as hawkish BoJ Minutes leave the door open for further policy tightening.
• Intervention fears also benefit the JPY and contribute to the slide amid subdued USD demand.
• The US-Japan rate differential warrants some caution before positioning for any further losses.

The USD/JPY pair is seen extending the previous day's late pullback from the 161.80 region, or a fresh high since July 2024, and drifting lower during the Asian session on Friday. Spot prices slide to the 161.00 mark in the last hour and, for now, seem to have snapped a five-day winning streak, though the near-term bias seems tilted in favor of bullish traders.

The Japanese Yen (JPY) strengthened following the release of Minutes of the Bank of Japan's (BoJ) April meeting, which showed that some board members called ​for raising interest rates ‌more swiftly to avoid underlying inflation ​from overshooting. This comes on top of an expected pickup in inflation over the coming months as higher input prices for businesses will eventually be passed on to consumers, and keeps further BoJ policy normalisation firmly on the table. Moreover, BoJ Deputy Governor Himino said that the central bank is likely to keep hiking rates based on economic, price, and financial trends.

Himino added that currency fluctuation is among the key factors influencing Japan’s economy and prices. Meanwhile, Japan's Chief Cabinet Secretary Minoru Kihara said on Thursday that the government is ready to respond appropriately to exchange-rate moves at any time. This, in turn, fuels intervention fears and lends additional support to the JPY, offsetting softer inflation figures from Japan. In fact, the Japan Statistics Bureau reported that the National Consumer Price Index (CPI) rose by 1.5% YoY in May, while a gauge excluding Fresh food arrived at 1.4%.

Meanwhile, a core reading that excludes both fresh food and energy prices slowed from the 1.9% YoY rate in April and rose 1.8% last month, remaining below the BoJ’s 2% annual target for a fourth straight month and marking its weakest level in four years. The data, however, does little to provide any impetus to the JPY. The US Dollar (USD), on the other hand, consolidates its strong weekly gains to the highest level since May 2025 and further contributes to the offered tone surrounding the USD/JPY pair, though any meaningful depreciating move still seems elusive.

The persistently wide interest rate differential between Japan and the US keeps the JPY carry trade active. In fact, the BoJ raised interest rates to 1.00%, or the highest since 1995, on Tuesday, while the US Federal Reserve (Fed) maintained its interest rate target range of 3.5% to 3.75% on Wednesday. This gap might hold back the JPY bulls from placing aggressive bets and help limit the downside for the USD/JPY pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near-term and positioning for a deeper corrective pullback.