- The Japanese Yen is undermined by a combination of factors, though it lacks bearish conviction.
- A positive risk tone, tariff jitters, and rebounding US bond yields exert upward pressure on USD/JPY.
- BoJ rate hike bets and the narrowing US-Japan rate differential should continue to underpin the JPY.
The Japanese Yen (JPY) remains on the back foot through the Asian session on Thursday in the wake of mounting worries that US President Donald Trump could impose fresh tariffs on Japan. Apart from this, a goodish rebound in the US Treasury bond yields and generally positive risk tone undermine the safe-haven JPY. That said, hawkish Bank of Japan (BoJ) expectations might hold back the JPY bears from placing aggressive bets amid the prevalent US Dollar (USD) selling bias.
Moreover, bets that the BoJ will hike interest rates continue to push the Japanese government bond (JGB) yields higher. In contrast, the US Treasury bond yields remain close to the year-to-date low amid expectations that Trump’s policies could trigger a US economic slowdown and force the Federal Reserve (Fed) to cut rates multiple times in 2025. The resultant narrowing of the US-Japan rate differential might further contribute to limiting losses for the lower-yielding JPY.
Japanese Yen remains on the back foot, lacks follow-through amid hawkish BoJ expectations
- US President Donald Trump alleged that Japan and China are guiding their currencies lower, and hinted that he could impose fresh tariffs on imports if this is not halted.
- The White House announced a one-month delay for US automakers to comply with the US–Mexico– Canada Agreement from the tariffs imposed on Mexico and Canada.
- This helps ease fears of a trade war and boosts investors’ appetite for riskier assets, which, in turn, undermines the safe-haven Japanese Yen during the Asian session.
- Investors continue to bet on additional rate hikes by the Bank of Japan, pushing the yield on the 10-year Japanese government bond to its highest level since June 2009.
- BoJ Deputy Governor Shinichi Uchida said on Wednesday that the central bank will adjust its policy further if the outlook for economic activity and prices is realized.
- The US Treasury bond yields have been falling for six consecutive weeks amid concerns that Trump’s trade barriers could slow economic growth in the long run.
- Moreover, Automatic Data Processing (ADP) reported that private sector employment in the US grew by just 77K in February, falling short of the 140K expected.
- This comes on top of a deterioration in US consumer confidence to a 15-month low and lifted bets that the Federal Reserve will restart cutting interest rates in June.
- The US Dollar bulls seem rather unimpressed by data showing that the economic activity in the US service sector continued to expand at an accelerating pace in February.
- The DXY prolongs its weekly downtrend for the fourth successive day and drops to the lowest level since November 6, which, in turn, should cap the USD/JPY pair.
- Traders now look to the usual Weekly Initial Jobless Claims data from the US for some impetus, though the focus remains on the US Nonfarm Payrolls on Friday.
USD/JPY could attract fresh sellers at higher levels and remain below the 150.00 psychological mark
From a technical perspective, the USD/JPY pair has been oscillating in a familiar range over the past two weeks or so. Against the backdrop of the recent sharp fall from the vicinity of the 159.00 mark, or the year-to-date peak touched in January, this might still be categorized as a bearish consolidation phase. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for spot prices remains to the downside and supports prospects for deeper losses.
Hence, a slide back below the 148.40 intermediate support, en route to the 148.00 neighborhood, or a multi-month low touched on Tuesday, looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to accelerate the downfall towards the 147.35 region en route to the 147.00 round figure.
On the flip side, the 149.45-149.50 zone now seems to act as an immediate hurdle ahead of the 149.75 area and the 150.00 psychological mark. Sustained strength beyond the latter might trigger a short-covering rally and lift the USD/JPY pair to the next relevant hurdle near the 150.55-150.60 region. Any further move, however, could be seen as a selling opportunity near the 151.00 round figure and remain capped near the weekly high, around the 151.30 area.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
