- The Japanese Yen attracts fresh buyers on Monday and snaps a two-day losing streak.
- An upward revision of Japan’s Q1 GDP reaffirms BoJ rate hike bets and boosts the JPY.
- The emergence of some USD selling exerts additional downward pressure on USD/JPY.
The Japanese Yen (JPY) remains on the front foot through the Asian session on Monday amid the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates. The bets were reaffirmed by an upward revision of Japan’s Q1 GDP print. Adding to this, a modest US Dollar (USD) downtick drags the USD/JPY pair away from over a one-week high touched on Friday.
The JPY bulls, however, seem reluctant to place aggressive bets and might opt to wait on the sidelines ahead of the US-China trade talks in London later today. Moreover, Friday’s stronger-than-expected US jobs data dampened hopes for imminent rate cuts by the Federal Reserve (Fed) this year, which is seen acting as a tailwind for the USD and limiting losses for the USD/JPY pair.
Japanese Yen retains positive bias amid rising BoJ rate hike bets
- Japan’s Cabinet Office reported earlier this Monday that the economy registered no growth during the first quarter of 2025, against the 0.2% contraction initially estimated. The revised data further revealed that Japan’s economy contracted at a slower pace, by 0.2% annualized during the reported month, compared to the 0.7% contraction initially reported.
- Additional details showed that private consumption, which accounts for more than half of the Japanese economy, inched up by 0.1% during the January-March period versus a flat preliminary reading. This gives the Bank of Japan headroom to hike interest rates further this year and provides a modest lift to the Japanese Yen at the start of a new week.
- Japan’s Prime Minister Shigeru Ishiba said that Japan must be aware that rising interest rates would push up the government’s debt-financing costs and affect its spending plans. The government must ensure public, market trust in Japan’s finances is maintained, Ishiba added further.
- The US Dollar, on the other hand, struggles to capitalize on Friday’s move higher, led by the better-than-expected US Nonfarm Payrolls (NFP) report. The crucial US employment data showed that the economy added 139K new jobs in May, lower than the previous month’s downwardly revised print of 147K, though it was better than the 130K forecasted.
- Other details of the report showed that the Unemployment Rate held steady at 4.2%, as anticipated. Adding to this, Average Hourly Earnings remained unchanged at 3.9%, surpassing consensus estimates of 3.7%. This reinforced expectations that the Federal Reserve would hold interest rates steady at its upcoming meeting and boosted the USD.
- Top US and Chinese officials will meet in London on Monday for negotiations aimed at defusing the high-stakes trade dispute between the world’s two largest economies. US President Donald Trump said last week that a call with Chinese leader Xi Jinping was focused almost entirely on trade and resulted in a very positive conclusion.
- On the geopolitical front, Russian forces launched massive attacks on Ukraine’s second-largest city of Kharkiv with drones, missiles, and guided bombs. Moreover, Russia claimed that a tank division has reached the western border of Donetsk and is continuing its advance, signaling a serious escalation in the conflict amid stalled peace talks.
USD/JPY bears seem reluctant; short-term trading range breakout in play
From a technical perspective, Friday’s breakout through a multi-day-old trading range was seen as a key trigger for the USD/JPY bulls. However, neutral oscillators on the daily chart make it prudent to wait for some follow-through buying beyond the 145.00 psychological mark, or a one-week high touched last Friday, before positioning for further gains. Spot prices might then climb to the 145.55-145.60 horizontal barrier en route to the 146.00 round figure and the May 29 swing high, around the 146.25-146.30 region.
On the flip side, the trading range resistance breakpoint, around the 144.00 round figure, now seems to protect the immediate downside. A convincing break below, however, might prompt some technical selling and drag the USD/JPY pair back towards the 143.50-143.40 area en route to the 143.00 mark and the next relevant support near the 142.70-142.65 horizontal zone. The latter should act as a pivotal point, which, if broken decisively, will set the stage for the resumption of the recent downfall from the May monthly swing high.
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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