• The US Dollar remains supported after positive comments on the meeting between Donald Trump and Xi Jinping.
• US inflation accelerated in April, reinforcing expectations for a prolonged restrictive monetary policy stance.
• Hawkish comments from the Bank of Japan are nevertheless limiting the pair’s upside potential.

USD/JPY trades around 157.95 on Thursday at the time of writing, up modestly by 0.05% on the day, as the pair remains close to its highest level in two weeks. The move continues to be mainly supported by the resilience of the US Dollar (USD) after several macroeconomic developments favored the US currency.

The US Dollar maintains a firm tone after White House officials described the meeting between United States (US) President Donald Trump and Chinese President Xi Jinping as positive. The two leaders discussed ways to strengthen economic cooperation, including broader access for US businesses to the Chinese market and increased Chinese investment in the United States. Discussions also covered geopolitical matters, with both sides agreeing on the importance of keeping the Strait of Hormuz open.

Support for the Greenback also comes from the latest upstream inflation data. The US Producer Price Index (PPI) rose by 6% YoY in April, its fastest pace since 2022, compared with 4.3% previously and above market expectations of 4.9%. On a monthly basis, the index increased by 1.4%, significantly above the expected 0.5%.

These figures reinforce expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy stance for an extended period. Markets have gradually priced out expectations for interest rate cuts this year, with some investors now considering the possibility of a rate hike before year-end.

On the Japanese side, the Japanese Yen (JPY) continues to find support from monetary tightening expectations. The Bank of Japan (BoJ) Summary of Opinions showed that several policymakers are considering an interest rate hike as early as the next meeting. Comments from board member Kazuyuki Masu also strengthened this view. MUFG noted that rising Japanese government Bond yields continue to support the outlook for near-term tightening, while BBH estimates that markets are currently pricing in around a 75% chance of a rate hike in June.

Investors are now turning their attention to the US April Retail Sales report later in the day, which could provide fresh clues on consumer spending trends and the Federal Reserve’s next policy steps.