Despite a backdrop of political uncertainty within Japan, the yen (JPY) seems to hold its ground during Monday’s Asian trading. This hesitance likely stems from ongoing remarks by US President Donald Trump about tariffs on China, keeping the safe-haven yen from fully benefiting from its recent rebound from a low against the US dollar (USD) seen since mid-February. The USD/JPY pair, meanwhile, has had a tough time gaining momentum above the 152.00 level due to the US dollar’s lack of movement.
Moreover, the differing policy expectations between the Bank of Japan (BoJ) and the US Federal Reserve (FRB) may set the ceiling for the USD/JPY as market liquidity dims with holidays in both Japan and the US. Still, the environment seems to favor yen sellers, meaning any attempt at recovery might be viewed as an opportunity to sell, potentially limiting substantial upward movement. On the other hand, there’s chatter about possible government intervention to prevent the yen from further weakening, which raises concerns among sellers.
Japanese yen bears maintain control amid domestic political turmoil and easing trade tensions
- Recently, President Trump announced intentions to impose 100% tariffs on Chinese products starting November 1, in response to new export restrictions from China on rare earth minerals. Vice President J.D. Vance backed Trump’s stance, warning that any aggressive response from China would trigger a firmer response from the US.
- China’s Ministry of Commerce reacted, stating it would protect its national interests if the US continued its push for new tariffs. These escalating remarks have added uncertainty about a potential meeting later this year between President Trump and Chinese President Xi Jinping, worsening global risk sentiment and nudging the Japanese yen higher.
- Conversely, Trump is trying to ease trade anxiety, stating on Truth Social that China’s economy is stable and that the US aims to support, not harm, it. He suggested both nations want to avoid triggering economic damage that would lead to a global risk-on trade surge and, paradoxically, could weaken the yen on Monday.
- In domestic news, Japan’s Komeito party has ended its long-standing partnership with the ruling Liberal Democratic Party (LDP), complicating Sanae Takaichi’s aspirations to be Japan’s first female prime minister. This shake-up is seen as another factor pressuring the yen, pushing the USD/JPY pair above the 152.00 threshold during Asian trading.
- Traders are still factoring in the likelihood of a BoJ interest rate hike by year’s end, while the FRB is expected to lower rates two more times before 2024. Additionally, the USD appears to be consolidating its recent decline, presenting another headwind for the USD/JPY pairing.
- The US government shutdown that started on October 1 hasn’t shown signs of resolution. With the budget freeze in effect, President Trump has already initiated layoffs among federal employees. This scenario adds another layer of caution for USD bulls regarding potential new positions on the pair.
USD/JPY needs to accept above the 100-hourly SMA/152.00 to support further upside.
From a technical standpoint, the USD/JPY has shown some strength beneath the 23.6% Fibonacci retracement level, following a recent rise from monthly lows as indicated by oscillators on the daily chart. However, the breakdown below the 100-hour simple moving average (SMA) from Friday warrants caution among buyers. Given this, it might be advisable to await a consistent rally above the 152.20 area (100 hourly SMA) before considering further intraday positions. If that occurs, prices could aim for the resistance levels of 152.70-152.75 and could potentially target a return to the 153.00 mark before testing the previous highs of around 153.25-153.30.
On the flip side, Friday’s low near 151.15 could serve as a temporary support level. A sustained drop below the round figure of 151.00 may lead the USD/JPY to challenge the 38.2% Fibo retracement level near 150.70. Should the downward trend continue, it might reach the psychological barrier of 150.00, which coincides with the 200-hour SMA and the 50% Fibo retracement level, making it a significant point of interest.
Bank of Japan Frequently Asked Questions
The Bank of Japan (BoJ) is responsible for the country’s monetary policy, aiming to ensure price stability with an inflation target of about 2%.
In 2013, the BoJ initiated an ultra-easy monetary policy to stimulate the economy amid low inflation. This included quantitative and qualitative easing, followed by the introduction of negative interest rates and yield control in 2016. In March 2024, the BoJ shifted away from this ultra-accommodative stance by raising interest rates.
The yen has depreciated against major currencies, especially following substantial economic stimulus from the World Bank. This situation worsened between 2022 and 2023 due to policy divergence with other central banks raising interest rates to counteract inflation. The trend began to reverse in 2024 when the BoJ stopped its ultra-accommodative approach.
Japan’s inflation has exceeded the BoJ’s target of 2%, driven by a weaker yen and rising global energy prices, along with expectations for domestic salary increases.
