Japanese Yen drifts lower vs USD as weak Household Spending data counters hawkish BoJ

The USD/JPY pair attracts some buyers for the second straight day and advances to a four-day high following the disappointing release of Japan's Household Spending data this Tuesday. Spot prices, however, lack bullish conviction amid mixed fundamental cues and currently trade just below the mid-157.00s area, up 0.15% for the day.

Japan's internal affairs ministry reported earlier today that consumer spending fell 2.9% YoY in March, compared to a 1.8% drop in the prior month and missing market estimates. This also marks the fourth consecutive month of decline in personal spending amid persistent inflationary pressure and comes on top of economic concerns stemming from rising US-Iran tensions, which, in turn, undermines the Japanese Yen (JPY). Apart from this, a modest US Dollar (USD) uptick acts as a tailwind for the USD/JPY pair.

The recent optimism over a potential US-Iran peace deal faded rather quickly amid major disagreements over Tehran's nuclear program and a standoff over the critical Strait of Hormuz. Furthermore, US President Donald Trump said that the ongoing US-Iran ceasefire was "unbelievably weak" and was on "massive life support." This keeps geopolitical risks in play and underpins the USD's reserve currency status. The USD bulls, however, opt to wait for the release of the US consumer inflation figures later today.

The crucial data will play a key role in influencing market expectations about the US Federal Reserve's (Fed) policy outlook and provide some meaningful impetus to the USD. In the meantime, traders have been scaling back their bets for a Fed rate hike in 2026, which marks a significant divergence in comparison to the BoJ's relatively hawkish outlook. In fact, BoJ's Summary of Opinions from the April meeting left the door open for an imminent rate hike. This might further contribute to capping the USD/JPY pair.