USD/JPY holds firm as Fed rate cut expectations diminish sharply

USD/JPY remains elevated as diminishing Federal Reserve rate cut expectations maintain the wide interest rate differential between the US and Japan. Markets have significantly reduced bets on Fed easing following recent economic data, keeping the yield gap that favors USD/JPY intact. The Bank of Japan's ultra-dovish stance contrasts sharply with the Fed's higher-for-longer narrative, providing fundamental support for the pair. Current market pricing suggests the Fed may delay rate cuts well into 2025, while the BoJ shows no urgency to normalize policy despite recent inflation gains. Technical analysis shows USD/JPY consolidating near multi-month highs, with strong support from the carry trade dynamic. The persistent rate differential continues to attract yield-seeking flows into USD/JPY positions. Traders should monitor any shifts in either central bank's policy stance, as narrowing rate expectations could trigger significant unwinding of long USD/JPY positions built on carry trade strategies.