- The Japanese yen has garnered interest from buyers for the second consecutive day, signaling renewed demand for safe havens.
- A slight decline in the USD has pulled USD/JPY down from its early weekly highs observed on Friday.
- The Bank of Japan’s dovish stance may limit JPY’s gains as attention shifts to this week’s FOMC meeting.
The Japanese Yen (JPY) has maintained a positive trend for the second day in a row. This has pushed the USD/JPY pair down to around 144.00 during Monday’s Asian trading session, along with the selling off of fresh US dollars (USD). Amid uncertainties related to President Trump’s tariffs, evolving geopolitical tensions, and easing trade relations between the US and China, the JPY appears to benefit as a safer option.
On the other hand, the Bank of Japan (BOJ) paused actions last Thursday, which could hinder the momentum for JPY optimists. Investors may hold off on making decisions due to potential deeper losses for the USD, preferring to adopt a wait-and-see approach ahead of the significant two-day FOMC policy meeting starting Tuesday. This situation calls for caution regarding potential top expansions for the USD/JPY pair over the coming weeks.
Japanese yen bulls retain strength amidst supporting geopolitical risks.
- Last week, China explored possible trade discussions with the US and expressed hopes of easing tensions between these two major economies. Additionally, President Trump announced 100% tariffs on all diplomatic production films.
- Israeli Prime Minister Netanyahu declared intentions to retaliate against Houthi rebels in Yemen, leading to missile strikes near Ben Gurion Airport. Iran’s defense minister warned that Tehran would respond if attacked by the US or Israel.
- Russian President Putin stated on Sunday that Russia has sufficient resources to see the war in Ukraine through to a definitive conclusion. This could maintain geopolitical uncertainties and further bolster the Japanese yen.
- The BOJ’s dovish guidance surprised many last Thursday, leading investors to reconsider wage increase expectations for June or July. However, with rising inflation and the possibility of sustained wage growth in Japan, further tightening of BOJ policies cannot be ruled out.
- The US dollar is struggling to capitalize on a slight bounce observed on Friday, following encouraging employment data reporting the addition of 177,000 jobs in April compared to the 130,000 forecast. The unemployment rate remained stable at 4.2.
- The data indicates the US labor market’s resilience amidst growing economic uncertainties stemming from Trump’s tariffs and pricing pressures. Many traders have adjusted their expectations for a Federal Reserve rate cut, pushing it back from June to July.
- Nonetheless, this still highlights a significant divergence from projections of a potential BOJ rate hike by 2025, which should act as a tailwind for a weaker JPY. Currently, market attention is shifting towards the upcoming two-day FOMC Monetary Policy Conference beginning Tuesday.
USD/JPY may see quicker declines should immediate support around 143.75-143.70 falter.
From a technical perspective, the USD/JPY pair faced difficulties last week, failing to establish a foothold above the 50% Fibonacci retracement level from declines in March and April. It encountered resistance around the 200-simple moving average on the 4-hour chart. Investors might want to wait for a breakout above 146.00 to confirm further buying opportunities, aiming for an intermediate resistance near 146.55-146.60, while targeting a test of the 61.8% Fibonacci level close to 147.00.
Meanwhile, the daily oscillator remains in positive territory. If it dips below 144.00, the area could present a buying opportunity, which may help limit declines following Friday’s slight downturn. The USD/JPY pair might be at risk if it drops around the 143.75-143.70 level, potentially sliding towards support around the 143.00 mark and the 23.6% Fibonacci level near 142.65, pushing it down to mid-term support around 143.30.
