Japanese Yen remains close to multi-month top against a broadly weaker USD
- The Japanese Yen attracts fresh buying as trade jitters boost safe-haven demand.
- Hopes for a US-Japan trade deal and BoJ rate hike bets further underpin the JPY.
- Dovish Fed expectations keep the USD depressed and also weigh on the USD/JPY pair.
The Japanese Yen (JPY) regains positive traction following the previous day's modest downtick as trade-related uncertainties keep investors on the edge and continue to underpin traditional safe-haven assets. Adding to this data released earlier today showed that Japan’s core machinery orders rebounded sharply in February and surpassed market expectations. This, along with hopes that Japan might strike a trade deal with the US and the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates in 2025, turn out to be other factors supporting the JPY.
Meanwhile, hawkish BoJ expectations mark a big divergence in comparison to rising bets for more aggressive policy easing by the Federal Reserve (Fed). This would result in the further narrowing of the rate differential between Japan and the US, which, in turn, supports prospects for a further appreciating move for the lower-yielding JPY. The US Dollar (USD), on the other hand, languishes near a multi-year low amid worries that the Trump administration’s trade policies would hinder the US economic growth. This keeps the USD/JPY pair close to over a six-month low touched last week.
Japanese Yen continues to draw support from uncertainty over Trump’s trade policies and hawkish BoJ expectations
- US President Donald Trump's rapidly shifting stance on trade tariffs continues to fuel uncertainty and support traditional safe-haven assets, including the Japanese Yen. Over the weekend, the Trump administration granted exclusions from steep tariffs on smartphones, computers, and other electronics imported largely from China.
- Adding to this, Trump suggested on Monday that he was looking into possible exemptions for the auto industry from the 25% tariffs already in place. Trump, however, promised more tariffs on other key sectors like semiconductors as soon as next week and threatened that he would impose tariffs on pharmaceuticals in the near future.
- Data released this Wednesday showed that Japan’s Core Machinery Orders rose more than expected, by 4.3% in February, marking the highest level in a year and a strong recovery from January’s 3.5% decline. Additional details of the report revealed that manufacturing Orders rose 3%, while non-manufacturing orders jumped 11.4%.
- This points to improving business sentiment, which should support capital investment and boost employment. Adding to this higher wages may fuel demand-driven inflation. This keeps the door open for another Bank of Japan interest rate hike during the first half of 2025 and turns out to be another factor lending support to the JPY.
- Investors remain optimistic about a positive outcome from US-Japan trade talks. In fact, Trump said last week that tough but fair parameters are being set for a negotiation. Adding to this, US Treasury Secretary Scott Bessent said that Japan may be a priority in tariff negotiations, fueling hopes for a possible US-Japan trade deal.
- Meanwhile, the recent unusual sell-off in the US Treasuries suggests that investors are losing faith in the US economy, which continues to dent the appeal for the US Dollar. Moreover, traders have been pricing in the possibility that the Federal Reserve will resume cutting rates in June and reduce its policy rate by 100 basis points this year.
- Hence, Fed Chair Jerome Powell's speech later this Wednesday will be scrutinized closely for cues about the future rate-cut path and determining the near-term USD trajectory. In the meantime, the US Retail Sales should allow traders to grab short-term opportunities around the USD/JPY pair later during the North American session.
USD/JPY bears might aim to retest the multi-month low around 142.00; attempted recovery is likely to get sold into
From a technical perspective, the USD/JPY pair's inability to attract any meaningful buyers suggests that a multi-month-old downtrend is still far from being over. Moreover, oscillators on the daily chart are holding deep in negative territory, which further suggests that the path of least resistance for spot prices remains to the downside. In the meantime, any further decline is likely to find some support near the 142.25-142.20 region, or the weekly trough, ahead of the 142.00 mark, or the multi-month low touched last Friday. A convincing break below the latter will reaffirm the negative bias and pave the way for a further near-term depreciating move for the currency pair.
On the flip side, attempted recovery back above the 143.00 mark might now confront stiff resistance near the overnight swing high, around the 143.60 region. Any further move up could be seen as a selling opportunity and remain capped near the 144.00 round figure. The latter should act as a key pivotal point, which if cleared decisively might trigger a short-covering rally and lift the USD/JPY pair to the 144.45-144.50 horizontal barrier en route to the 145.00 psychological mark. The momentum could extend further towards the 145.50 zone and 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.
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