- The Japanese Yen will defeat a winning streak against USD for two days, further recovering from its weekly lows.
- Concerns about Trump's trade tariffs and Hawkishboj's expectations continue to serve as a tailwind for JPY.
- FRB rate cut bets help to bring USD closer to the lows that came a few months ago, helping to reduce the rise in USD/JPY.
The Japanese yen (jpy) vibrates in a narrow range against the American counterpart during Thursday's Asian session, amid a fundamental cues. Investors are worried that US President Donald Trump will be able to impose fresh tariffs on Japan. This generally impairs the loss of safe JPY along with positive risk tones. However, the chaotic implementation of Trump's tariffs and impact on the global economy may provide some support to JPY. Furthermore, the rising bet that the Bank of Japan (BOJ) will continue to raise interest rates as Japan expands inflation has contributed to JPY's downside restrictions.
Meanwhile, Hawkish Boji's expectations continue to raise the yields of Japanese government bonds (JGB) near multi-year highs. The reduction in the rate difference between Japan and other countries has been found to be another factor that serves as a tailwind for the low JPY. Meanwhile, the US dollar (USD) is hanging near the low and low months of low, amid the hopes that the Federal Reserve will cut fees several times this year. This failed to assist the USD/JPY pair to take advantage of the modest recovery from low touch in months Tuesday. Traders are currently looking for new driving forces in the US Producer Price Index (PPI).
Japan's Yenbles have the advantage amid the expectations of Hawkishboji, the fear of a trade war
- A 25% tariff on all steel and aluminum imports by US President Donald Trump came into effect Wednesday. Trump also threatened to respond to all measures announced by the European Union and Canada.
- Trump repeated his warnings, revealing “mutual” tariffs in countries around the world next month, promoting concerns about further escalation of the trade war and support for the traditionally safe Japanese yen.
- Japanese companies have agreed to a significant wage rise for the third year in a row to help workers deal with inflation and workforce shortages. Higher wages are expected to boost consumer spending and contribute to rising inflation.
- This possibility could add more room for additional interest rate hiking at the Bank of Japan this year. This has brought the yield on Japanese government bonds to the highest level for 10 years since the global financial crisis of 2008.
- Meanwhile, Governor Boji Governor Huada has shown that there is no immediate plan to intervene in the bond market, and said it is natural for long-term fees to move in a way that reflects the market outlook for policy rates.
- Traders will step up their bet that the Federal Reserve must lower interest rates this year, more than expected, amid the increasing possibility of a recession rising amid the Trump administration's aggressive policies.
- The forecast was reaffirmed by data released on Wednesday. This shows that the US Consumer Price Index (CPI) headlines are lower than expected, down from 3% the previous month at 2.8% per year in February.
- Additional details in the report reveal that the core CPI, which excludes volatile food and energy prices, has been eased to a YOY rate of 3.1% for the month, reported from a 3.3% increase in January. Reading was below the expected 3.2%.
- Traders are looking forward to the release of the US Producer Price Index (PPI) for new driving forces later in the early North American session. However, the basic background appears to be leaning in favor of USD/JPY bears.
USD/JPY exceeds the immediate support of the 148.00 mark. Not from wood yet
From a technical standpoint, an unacceptable over the 149.00 round figure mark and subsequent pullback validates the negative outlook for the USD/JPY pair. Plus, the daily chart oscillators are deeply harboring in bearish territory and are separated from being in zones that are still sold. This suggests that the pathway with the least resistance to spot prices depends on the downside. Therefore, some follow-through sales below the 148.00 mark may expose the following related support near the 147.25-147.20 area: The pair will be further below the 147.00 mark and will retest the area 146.55-146.50 mentioned Tuesday for about a month's low.
Conversely, the 148.60-148.70 zones appear to serve as an immediate hurdle before an overnight swing around the 149.00 mark and 149.20 region. A sustained strength beyond the latter may encourage a short cover gathering, allowing the USD/JPY pair to regain a psychological mark of 150.00. This momentum could expand further towards a horizontal barrier of 150.55-150.60 around the 151.30 area, up to 151.00 round figures and monthly swing heights.
Bank of Japan FAQ
The Bank of Japan (BOJ) is the central bank of Japan and has established monetary policy in this country. Its mission is to issue banknotes and implement currency and financial management to ensure price stability. This means an inflation target of around 2%.
The Bank of Japan embarked on a Ultra Loose Money Policy in 2013 to stimulate economic and fuel inflation in a low expansion environment. Bank policies are based on quantitative and qualitative easing (QQE) or printing notes to purchase assets such as governments and corporate bonds to provide liquidity. In 2016, the banks first introduced negative interest rates and then doubled their strategy and relaxed further by directly managing government bond yields for the next decade. In March 2024, BOJ raised interest rates and effectively retreated from a very loose monetary policy stance.
Due to a large bank stimulus, the yen was depreciated from its major currency peers. This process worsened in 2022 and 2023 due to increased policy differences between the Bank of Japan and other major central banks. BOJ's policy has reduced the yen's value as the gap between its currencies widened. This trend was partially reversed in 2024 when BOJ decided to abandon its ultra-loose policy stance.
The weak yen and the surge in global energy prices have led to Japan's inflation rising, surpassing the BOJ's 2% target. The outlook for an increase in the country's salary, an important factor in promoting inflation, also contributed to the movement.
