- The Japanese yen is seeing some selling pressure following Trump’s comments about the US trade deal.
- Positive risk sentiment is putting additional pressure on the safe-haven JPY while supporting the USD/JPY pair.
- Expectations divergence between the Bank of Japan (BOJ) and the Federal Reserve may benefit JPY bulls and constrain the currency pair’s movement.
The Japanese Yen (JPY) has dipped during Wednesday’s Asian trading session, pulling back from its recent highs against the U.S. dollar. This drop comes in the wake of U.S. President Donald Trump’s doubts regarding a trade agreement with Japan. He mentioned that potential tariffs on Japanese imports might exceed the previously stated 24% rate announced earlier this month.
At the same time, the BOJ’s cautious stance has led investors to adjust their expectations for an imminent interest rate hike. Despite this, there’s a prevailing belief that the BOJ will continue on a path toward normalizing monetary policy, especially as inflation has consistently exceeded its target for almost three years. This sentiment may help limit losses for the JPY and aid in a rebound for the USD/JPY pair, especially amidst lower demand for the U.S. dollar.
Japanese yen sinks as Trump questions trade agreement with Japan
- Trump has voiced frustration with stalled trade talks and raised doubts about an agreement with Japan, suggesting possible tariffs of 30% or 35% on Japanese imports, which is higher than the previously mentioned 24% rate.
- Bank of Japan Governor Ueda noted that while headline inflation has surpassed 2% for nearly three years, the underlying inflation remains below target. He emphasized that any future rate hikes will heavily depend on overall inflation, including wage growth and expectations.
- Kazuyuki Masu, a new BOJ board member, advised against hasty interest rate increases, citing various economic risks. Nevertheless, rising inflationary pressures in Japan could leave the door open for BOJ rate hikes in 2025, particularly if trade risks settle down.
- In contrast, Federal Reserve Chairman Jerome Powell indicated that the Fed might have already relaxed monetary policy if not for Trump’s tariff threats. When questioned about the timing of potential interest rate cuts, Powell responded that it’s uncertain and will rely on forthcoming data.
- Still, many traders are anticipating a Fed rate cut in July, pricing it in with a high probability for the September policy meeting. Such movements could push the U.S. dollar to its lowest level since February 2022, which would likely keep the USD/JPY pair suppressed.
- On another note, the U.S. ISM manufacturing PMI showed a contraction for the fourth consecutive month, although economic activity within the manufacturing sector has slowed in June. The index registered at 49, up from 48.5 in May.
- Separately, the U.S. Bureau of Labor Statistics reported that job openings at the end of May stood at approximately 7.769 million, exceeding the estimated figure of 7.3 million from April.
- Traders are now looking forward to the release of the U.S. ADP Report on Private Employment later this Wednesday. There’s a continued focus on the more closely watched Non-Farm Payroll (NFP) report due Thursday.
USD/JPY may attract new sellers around 144.00 and face resistance near the 200-SMA on the H4
Technically speaking, negative indicators on the 4-hour and daily charts suggest that any rise toward the 144.00 threshold is an opportunity for sellers. This may cap the USD/JPY pair near the 200-period Simple Moving Average (SMA) around 144.35. If there’s significant buying pressure that pushes it above the horizontal resistance at 144.65, it could re-test the psychological level of 145.00.
On the downside, support might be found in the 143.40-143.35 range before a potential drop toward 143.00 and the 142.70-142.65 area. If these support levels aren’t maintained, it could strengthen the short-term negative outlook for the USD/JPY pair, accelerating declines toward the monthly swing lows around 142.15-142.10. A further decline could even push the pair below the 141.00 level in the near term.
