- The Japanese Yen attracts safe-haven flows amid trade uncertainties and rising geopolitical tensions.
- The divergent BoJ-Fed policy expectations undermine the USD/JPY pair amid a broadly weaker USD.
- Traders now look forward to the release of the US PPI for short-term impetus later this Thursday.
The Japanese Yen (JPY) strengthens for the second consecutive day against a broadly weaker US Dollar (USD) and moves further away from a two-week low touched the previous day. The initial market reaction to news out of the high-stakes US-China trade talks fades rather quickly in the wake of US President Donald Trump’s fresh tariffs threat. This, along with rising geopolitical tensions, tempers investors’ appetite for riskier assets and underpins the JPY’s safe-haven status.
Apart from this, expectations that the Bank of Japan (BoJ) might push for tighter monetary conditions amid signs of broadening inflation in Japan lend additional support to the JPY. The USD, on the other hand, seems vulnerable near the monthly low as Wednesday’s softer US consumer inflation figures reaffirmed bets that the Federal Reserve (Fed) would resume its rate-cutting cycle in September. This, in turn, drags the USD/JPY pair below the 144.00 mark in the last hour.
Japanese Yen is underpinned by a combination of factors; seems poised to appreciate further
- US President Donald Trump told reporters on Wednesday that he will set unilateral tariffs and send letters to trading partners in the next week or two, saying “this is the deal you can take it or leave it”. Earlier, US Treasury Secretary Scott Bessent told Congress that it is highly likely that the tariff pause would be extended to countries that are negotiating in good faith.
- The comments add a layer of uncertainty amid Trump’s rapidly shifting stance on trade policies, overshadowing the optimism over the US-China agreement on a plan to ease export controls and trade tensions. Meanwhile, the Wall Street Journal reported that China is imposing a six-month limit on rare-earth export licenses for US automakers and manufacturers.
- In return, US negotiators have agreed to ease some export restrictions on items such as jet engines, related components, and ethane — used in plastics manufacturing. The temporary arrangement reflects a fragile truce between the world’s two largest economies as both sides keep options open to escalate if tensions flare again and leverage it in future talks.
- A Reuters poll indicated that a slight majority of economists expect that the Bank of Japan will forego another interest rate hike this year. Investors, however, seem convinced that the BoJ would proceed with monetary tightening, marking a significant divergence from rising market bets that the Federal Reserve (Fed) will resume its rate-cutting cycle later this year.
- The US Bureau of Labor Statistics (BLS) reported on Wednesday that the headline Consumer Price Index (CPI) rose from 2.3% in the previous month to the 2.4% annualized pace in May, missing consensus estimates of 2.5%. Meanwhile, the core gauge, which excludes volatile food and energy prices, climbed 2.8% during the reported month, matching April’s increase.
- Traders were quick to react and are now pricing in a nearly 70% chance that the Federal Reserve will cut its interest rate by 25 basis points (bps) in September, up from 57% before the data. This leads to a further decline in US Treasury bond yields and drags the US Dollar back to the monthly swing low, which, in turn, exerts pressure on the USD/JPY pair.
- On the geopolitical front, Israel reportedly may soon launch a strike on Iran’s nuclear sites. To prepare for the possibility, the US State Department authorized some staff to leave Iraq, while the Pentagon is allowing military families to depart US bases across the region voluntarily. This comes as Trump expressed doubt about reaching a nuclear deal with Iran.
- The USD/JPY pair dropped to a fresh weekly low during the Asian session on Thursday, though it managed to rebound a few pips in the last hour and currently trades around the 144.00 mark, still down over 0.35% for the day. Traders now look forward to the release of the US Producer Price Index (PPI), which could produce short-term opportunities.
USD/JPY could accelerate the downfall once the Asian session low, around 143.70, is broken
From a technical perspective, the overnight subsequent pullback from a two-week high and the subsequent slide fall below the 144.55-144.50 horizontal support favors the USD/JPY bears. Moreover, slightly negative oscillators on hourly/daily charts suggest that the path of least resistance for spot prices is to the downside. Some follow-through selling below the Asian session low, around the 143.70 area, will reaffirm the bearish outlook and pave the way for a fall towards the 143.00 round figure en route to the 142.62-142.60 horizontal support.
On the flip side, the 144.55 area, or the Asian session peak, now seems to act as an immediate hurdle, above which a fresh bout of short-covering could allow the USD/JPY pair to make a fresh attempt towards conquering the 145.00 psychological mark. Bulls, however, might wait for a subsequent strength beyond the 145.45 region, or a two-week high touched on Wednesday, before positioning for additional gains. Spot prices might then accelerate the positive momentum towards the 146.00 round figure.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
