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What’s happening: The US dollar recorded gains against the Japanese yen on Tuesday as investors digested the Bank of Japan’s interest rate decision.
What happened: Trade talks between the US and Japan during the G7 Summit in Canada fail to reach a deal.
US President Donald Trump left the G7 Summit early, saying that the Israel-Iran situation was intensifying rapidly.
Why it matters: The Bank of Japan held its key short-term interest rate at 0.5% at its latest meeting, maintaining the rate at the highest level since 2008. The BoJ’s decision came in-line with market estimates and underscored the bank’s cautious approach due to rising geopolitical and trade-related concerns.
The BoJ also reaffirmed that it would decrease government bond purchases by ¥400 billion per quarter through March 2026 and will slow those reductions to ¥200 billion per quarter from April 2026 through March 2027.
Japan’s Prime Minister Shigeru Ishiba and US President Donald Trump continued trade talks during the G7 summit in Canada on Monday but failed to reach a deal, exerting further pressure on the yen.
Trump left the G7 Summit early and returned to Washington saying that Iran was willing to come to the negotiating table. At the same time, the US expedited the deployment of its USS Nimitz aircraft carrier and other ships to the Middle East.
Data released from the US on Tuesday showed consumers becoming more cautious due to ongoing trade and inflation concerns before the Federal Reserve’s interest rate decision.
US retail sales came in weaker-than-expected for May, while consumer spending received some support from strong wage growth.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose to 98.82 on Tuesday.
Overall market sentiment remained volatile through the day, mainly due to the ongoing Israel-Iran conflict.
The USD/JPY forex pair surged to 145.29 on Tuesday.
Data released this morning showed that Japan’s trade deficit shrank to ¥637.61 billion in May, from ¥1,225.17 billion in the year-ago month. The figure came in better than market estimates of a deficit of ¥893 billion.
Japan’s core machinery orders declined by 9.1% to ¥919 billion in April, while the Reuters Tankan index for Japanese manufacturers tumbled to +6 in June, falling for the second straight month.
What to watch: Investors await the Federal Reserve’s interest rate decision today (2200 UAE Time).
The release of Japan’s inflation rate on Friday will also be in focus. Analysts expect Japan’s annual inflation rate to remain unchanged at 3.6% in May, while the core consumer price index is expected to increase 3.6% year-over-year for the month.
Context: Equity markets in Europe closed lower on Tuesday amid renewed concerns around a potential escalation in the ongoing conflict between Israel and Iran.
Details: Investors grew cautious after US President Trump called residents to evacuate Tehran, increasing concerns of a deeper and prolonged conflict between Israel and Iran. Meanwhile, Israel continued strikes on Iranian targets, including missile storage sites.
Upbeat economic data also failed to provide a boost to markets on Tuesday. Germany’s ZEW Indicator of Economic Sentiment rose by 22.3 points to 47.5 for June, recording the strongest reading since March’s three-year high level of 51.6. The figure also topped market estimates of 35. The ZEW Indicator of Economic Sentiment for the Eurozone also jumped by 23.7 points to 35.3 in June, well above market projections of 23.5.
The STOXX Europe 600 Index fell 0.85% to close at 542.26 on Tuesday. London’s FTSE 100 declined 0.46% to settle at 8,834.03, while Germany’s DAX 40 and France’s CAC 40 lost 1.12% and 0.76%, respectively.
What to watch: Investors await the release of economic data on Eurozone’s current account (1200 UAE Time) and inflation rate (1300 UAE Time) today. The current account surplus in the Eurozone, which rose to a record high of €60.1 billion in March from €37.7 billion in the year-ago period, is expected to narrow to €59.5 billion in April.
Analysts expect Eurozone’s consumer price inflation to ease to 1.9% year-over-year for May, from 2.2% in the previous month.
Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.70%, 0.84% and 1.00%, respectively.
Israel said it had killed Iran’s top military commander Ali Shadmani, after killing his predecessor in an earlier attack. The news exerted pressure on the IRR/USD forex pair.
The UK announced sanctions on persons and entities accused of being related to Russia’s military, energy and operations. The news sent the RUB/GBP pair lower in forex trading this morning.
New Zealand’s current account deficit narrowed to NZ$2.32 billion in the first quarter, from NZ$3.82 billion in the year-ago period, lending support to the NZD/USD forex pair.
Indonesia reported a trade surplus of $4.9 billion in May. Despite this being the largest surplus since July 2024. The IDR/USD pair fell in forex trading this morning.
Ireland’s trade surplus widened to €11.1 billion in April, from €8.6 billion in the year-ago month. Exports surging 12.7% year-over-year to €21.9 billion lent support to the EUR/USD forex pair.
Eurozone’s 12-month Bill auction (1510 UAE Time), 3-month Bill auction (1510 UAE Time) and 6-month Bill auction (1510 UAE Time), South Africa’s inflation rate (1200 UAE Time) and retail sales (1500 UAE Time), Italy’s current account (1300 UAE Time), Germany’s 30-year Bund auction (1330 UAE Time), US MBA mortgage applications (1500 UAE Time), building permits (1630 UAE Time), housing starts (1630 UAE Time), initial jobless claims (1630 UAE Time), continuing jobless claims (1630 UAE Time), EIA crude oil stocks change (1830 UAE Time), EIA gasoline stocks change (1830 UAE Time), EIA distillate stocks change (1830 UAE Time), EIA heating oil stocks change (1830 UAE Time), 17-week Bill auction (1930 UAE Time), 4-week Bill auction (1930 UAE Time), 8-week Bill auction (1930 UAE Time), 15-year mortgage rate (2000 UAE Time), 30-year mortgage rate (2000 UAE Time), EIA natural gas stocks change (2000 UAE Time) and Fed press conference (2230 UAE Time), Mexico’s aggregate demand (1600 UAE Time) and private spending (1600 UAE Time), Russia’s GDP growth rate (2000 UAE Time), as well as Argentina’s retail sales (2300 UAE Time).
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