Japanese Yen trades with mild positive bias against USD; bulls seem non-committed

The Japanese Yen attracts some buyers on Tuesday, though it lacks follow-through.

Concerns that Trump’s tariffs would impact Japan’s industries cap gains for the JPY.

The divergent BoJ-Fed expectations favor USD/JPY bears amid subdued USD demand.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and for now, seems to have stalled the previous day's retracement slide from over a one-week high. The Bank of Japan's (BoJ) Tankan survey showed that Japanese enterprises raised their inflation forecasts for one year, three years, and five years ahead. This, in turn, backs the case for more rate increases from the BoJ and turns out to be a key factor supporting the JPY. Moreover, a modest US Dollar (USD) downtick keeps the USD/JPY pair depressed below the 150.00 psychological mark. 

The JPY bulls, however, lack conviction amid a positive turnaround in the global risk sentiment, which tends to undermine the safe-haven currency. Apart from this, receding expectations that the BoJ would raise the policy rate at a faster pace, amid worries about an economic slowdown on the back of US tariffs, act as a headwind for the JPY. Nevertheless, the BoJ's hawkish outlook still marks a big divergence in comparison to bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon. This, in turn, suggests that the path of least resistance for the lower-yielding JPY remains to the upside. 

Japanese Yen draws support from bets that the BoJ will continue raising interest rates

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• The Bank of Japan’s Tankan survey released earlier this Tuesday showed that business confidence at large manufacturers in Japan eased in the first quarter (Q1) of 2025. The headline large Manufacturers' Sentiment Index came in at 12.0 in Q1 from the previous reading of 14.0, in line with consensus estimates. Additional details revealed that the large Manufacturing Outlook for the first quarter arrived at 12.0 versus 13.0 prior and the 9.0 expected. 

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• Furthermore, Japanese enterprises projected consumer prices to rise 2.5% in one year and 2.4% in three years versus 2.4% and 2.3% increase, respectively, in the prior survey. They also forecast inflation to rise 2.3% in five years compared to a 2.2% increase in the prior survey. This comes on top of Friday's strong consumer inflation figures from Tokyo – Japan's capital city – and reaffirms bets that the BoJ might continue raising interest rates in 2025. 

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• US President Donald Trump last week unveiled a 25% tariff on imported cars and will announce reciprocal tariffs later today, at 19:00 GMT. Investors remain worried that the new levies would have a far-reaching impact on Japan's key industries and force the BoJ to keep the policy steady for the time being. Apart from this, a positive tone around the Asian equity markets might hold traders from placing bullish bets around the safe-haven Japanese Yen. 

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• The US Dollar, on the other hand, continues with its struggle to attract any meaningful buyers amid concerns that Trump's trade tariffs would dent economic growth. Furthermore, the global flight to safety and expectations of multiple rate cuts from the Federal Reserve drag the US Treasury bond yields lower. The resultant narrowing of the US-Japan rate differential lends additional support to the lower-yielding JPY during the Asian session on Tuesday.

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• Traders now look forward to this week's important US macro releases, scheduled at the beginning of a new month, starting with the JOLTS openings and ISM Manufacturing PMI on Tuesday. This will be followed by the ADP report on Wednesday, the US ISM Services PMI on Thursday, and the closely-watched US Nonfarm Payrolls (NFP) on Friday. This will play a key role in influencing the USD and provide some meaningful impetus to the USD/JPY pair.

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USD/JPY seems vulnerable; pullback to broken multi-month-old lower ascending channel boundary in play

From a technical perspective, the overnight breakdown below the lower end of a multi-week-old ascending trend channel was seen as a key trigger for the USD/JPY bears. However, neutral oscillators on the daily chart and the overnight resilience below the 100-period Simple Moving Average (SMA) on the daily chart warrant caution before positioning for further losses. Hence, any subsequent slide could find some support near the 149.00 mark ahead of the overnight swing low, around the 148.70 area. Some follow-through selling will reaffirm the negative bias and make spot prices vulnerable to resuming a well-established downtrend witnessed over the past three months or so.

On the flip side, momentum beyond the previous day's peak, around the 150.25 area, could lift the USD/JPY pair beyond the 150.75-150.80 hurdle and allow bulls to reclaim the 151.00 mark. This is followed by the March monthly swing high, around the 151.30 region and a technically significant 200-day SMA, currently pegged near the 151.60 zone. A sustained strength beyond the latter might shift the bias in favor of bulls and lift the pair to the 152.00 mark en route to the 152.45-152.50 region and the 100-day SMA, around the 153.00 round figure.