Japanese Yen strengthens further; USD/JPY seems vulnerable near 149.00
- The Japanese Yen climbs back closer to a multi-month high against the USD on Tuesday.
- BoJ rate hike bets and the risk-off mood provide a goodish boost to the safe-haven JPY.
- Expectations for more Fed rate cuts undermine the USD and further weigh on USD/JPY.
The Japanese Yen (JPY) attracts some follow-through buying for the second straight day on Tuesday and moves back closer to a multi-month peak touched against its American counterpart last week. The hawkish sentiment surrounding the Bank of Japan's (BoJ) policy outlook continues to underpin the JPY. Moreover, concerns about the potential economic fallout from US President Donald Trump's tariff policies temper investors' appetite for riskier assets and further benefit the safe-haven JPY.
Adding to this, Trump's threat to Japan over currency depreciation, along with subdued US Dollar (USD) price action, turn out to be other factors exerting some downward pressure on the USD/JPY pair. The JPY bulls, meanwhile, seem rather unaffected by weaker macro data from Japan, which showed an unexpected uptick in the Unemployment Rate and a fall in corporate capital expenditure for the first time in three years. This, in turn, suggests that the path of least resistance for the JPY remains to the upside.
Japanese Yen is underpinned by hawkish BoJ expectations and the global flight to safety
- Growing speculation that the Bank of Japan will hike interest rates sooner rather than later keeps the yield on the benchmark 10-year Japanese government bond close to its highest level since 2009 and continues to underpin the Japanese Yen.
- Ukrainian President Volodymyr Zelenskiy's meeting with US President Donald Trump ended in disaster on Friday. A White House official confirmed that the US has paused military aid to Ukraine, which adds to the uncertainty in markets.
- Trump’s tariffs on Mexican and Canadian goods will take effect this Tuesday, along with a new 10% levy on Chinese goods. China’s Commerce Ministry vowed to take necessary countermeasures to safeguard legitimate rights and interests.
- Trump said on Monday that he has warned the leaders of China and Japan against devaluing their currencies against the US Dollar, arguing that such actions put American industries at a disadvantage.
- Japan's Finance Minister, Katsunobu Kato, said on Tuesday that the country is not pursuing a policy of devaluing the domestic currency and Japan has confirmed its "basic stance on currency policy" with US Treasury Secretary Scott Bessent.
- Speaking at a separate news conference, Japan's Economy Minister Ryosei Akazawa said that the government intervenes in the currency market only when the movement is "speculative".
- Data released earlier this Tuesday showed that the Unemployment Rate in Japan unexpectedly edged up from 2.4% to 2.5% in January and Japanese companies reduced spending on plants and equipment in October-December by 0.2%.
- The Institute for Supply Management's (ISM) Manufacturing PMI slipped to 50.3 in February from 50.9 in the previous month, while the Prices Paid Index jumped to 62.4, or nearly a three-year high amid worries about duties on imports.
- Moreover, investors remain concerned that Trump's policies would increase price pressures and slow down activity in vital industrial sectors. This might force the Federal Reserve to cut rates further and weigh on the US Dollar.
USD/JPY seems vulnerable to slide further towards the next relevant support near 148.00
From a technical perspective, the overnight failure near the 151.00 support breakpoint, now turned resistance, validates the near-term bearish outlook for the USD/JPY pair. 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, supports prospects for an extension of the pair's recent well-established downtrend witnessed over the past two months or so. Hence, some follow-through weakness below mid-148.00s, towards the next relevant support near the 148.00 round figure, looks like a distinct possibility. The downward trajectory could extend further towards the 147.35-147.30 region en route to the 147.00 mark.
On the flip side, the 149.65-149.70 area now seems to act as an immediate hurdle ahead of the 150.00 psychological mark. Any further move up might still be seen as a selling opportunity near the 150.60 region, which, in turn, should cap the USD/JPY pair near the 150.90-151.00 key hurdle. The latter should act as a pivotal point, which if cleared decisively might prompt a short-covering rally towards the 151.40-151.45 intermediate hurdle en route to the 152.00 round figure and the 152.35 region, or the very important 200-day Simple Moving Average (SMA).
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.
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