The Japanese Yen is pressured by renewed worries about Trump’s trade tariffs.
A modest USD strength provides a goodish lift to the USD/JPY pair on Monday.
The divergent BoJ-Fed policy expectations should help limit deeper JPY losses.
The Japanese Yen (JPY) attracts some sellers at the start of a new week as US President Donald Trump's tariff threats revive fears that Japan would also be an eventual target of new US levies. Apart from this, a modest US Dollar (USD) strength, lifts the USD/JPY pair to the 152.00 mark during the Asian session.
Against the backdrop of the upbeat US jobs report released on Friday, expectations that Trump's policies could boost inflation and limit the scope for the Federal Reserve (Fed) to ease policy provide a modest lift to the Greenback.
Any meaningful JPY depreciation, however, seems elusive in the wake of the growing acceptance that the Bank of Japan (BoJ) will hike interest rates again this year, which continues to push Japanese government bond (JGB) yields higher. The resultant narrowing of the rate differential between Japan and other major central banks should, in turn, limit the downside for the lower-yielding JPY. Hence, it will be prudent to wait for strong follow-through JPY selling before confirming that the USD/JPY pair has bottomed out in the near term.
Japanese Yen bulls turn cautious amid Trump’s fresh tariff threats
US President Donald Trump said on Sunday that he will announce an additional 25% tariffs on all steel and aluminum imports into the US, and will also announce reciprocal duties over what he sees as unfair trading practices.
Worries that Trump's protectionist policies would put upward pressure on inflation, along with Friday's upbeat US job data, should allow the Federal Reserve to keep rates on hold, which, in turn, boosts the US Dollar.
The closely-watched US Nonfarm Payrolls (NFP) report showed that the Unemployment Rate declined to 4% from 4.1% and Average Hourly Earnings rose more than expected by 4.1% during the reported month.
Other details of the publication revealed that the number of employed people rose by 143,000 in January compared to the 170,000 expected and the 307,000 increase (revised from 256,000) recorded in the previous month.
The International Monetary Fund (IMF) warned last week that Japan should remain alert to potential spillover effects from rising volatility in global markets that could affect liquidity conditions for its financial institutions.
The IMF added that Japan needs to be vigilant about monitoring any fallout from the Bank of Japan's rate hikes, such as an increase in the government's debt-servicing costs and a possible jump in corporate bankruptcies.
Kazuhiro Masaki, Director General of the BoJ's monetary affairs department, said last Thursday that the central bank will continue to raise interest rates if underlying inflation accelerates toward its 2% target as projected.
This comes on top of data showing that Japan’s inflation-adjusted real wages rose 0.6% year-on-year in December – marking the second consecutive monthly gain – and backs the case for further tightening by the BoJ.
The view was echoed in the Summary of Opinions from the BoJ's January meeting, which revealed that board members had discussed the likelihood of raising interest rates further and should support the Japanese Yen.
USD/JPY could face stiff resistance near the 152.45-152.50 confluence
Technical indicators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. Apart from this, last week's breakdown below the 152.50-152.45 confluence – comprising the 100- and the 200-day Simple Moving Averages (SMAs) – favors bearish traders. Hence, any subsequent move-up is more likely to attract fresh sellers and remain capped near the said confluence support breakpoint. Some follow-through buying, however, might trigger a short-covering move and allow the USD/JPY pair to reclaim the 153.00 round figure.
On the flip side, the Asian session low, around the 151.25 area, now seems to protect the immediate downside ahead of the 151.00-150.95 area, or the lowest level since December 10 touched on Friday. Acceptance below the latter could drag the USD/JPY pair below the 150.55-150.50 intermediate support, toward the 150.00 psychological mark. The downward trajectory could extend further towards the 149.60 horizontal support en route to the 149.00 mark and the December swing low, around the 148.65 region.
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