• The Japanese Yen declines due to low trading as traders observe the Mountain Day holiday in Japan.
• The US Dollar receives support due to diminished odds of Fed rate cuts following last week’s upbeat US data.
• Safe-haven flows may limit the downside of the JPY amid increased geopolitical tensions.

The Japanese Yen (JPY) retraces its recent gains against the US Dollar (USD), with trading volumes likely to be low due to the Japanese markets being closed for Mountain Day. Support for the USD/JPY pair comes from stronger-than-expected US economic data released last week, leading traders to reduce their expectations for interest rate cuts by the US Federal Reserve.

On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. Bowman suggested that the Federal Reserve may not be prepared to cut rates at its next meeting in September, according to Bloomberg.

The CME FedWatch Tool indicates a 46.5% chance of a 50-basis point rate cut by the Fed at the September meeting, a significant decrease from the 74.0% probability reported a week ago.