The Japanese yen (JPY)/U.S. dollar (USD) pair edged higher during Tuesday’s Asian session and for now appears to have halted a sharp retreat from multi-month highs seen the previous day. 

Despite growing concerns that tougher reciprocal tariffs from the United States could have a negative impact on Japan's economy, broad signs of inflation in Japan still leave the door open for the Bank of Japan (BoJ) to further raise interest rates in 2025. This is seen as a key factor that continues to support the yen.

In addition, concerns that U.S. President Donald Trump's reciprocal tariffs could cause global economic disruptions further boosted the yen's safe-haven status.

Meanwhile, traders are considering that a tariff-driven slowdown in the U.S. economy could force the Federal Reserve to slash interest rates. This marked a sharp divergence from the Bank of Japan's hawkish expectations, hampering the U.S. dollar's (USD) two-day rebound from multi-month lows and further supporting the low-yielding yen.