- The Japanese Yen attracts some intraday buyers on Friday, though the upside seems limited.
- The mixed Japanese macro data boosts the case for further BoJ rate hikes and back the JPY.
- The Fed’s hawkish pause favors the USD bulls and supports USD/JPY amid trade optimism.
The Japanese Yen (JPY) remains on the front foot against its American counterpart through the Asian session and for now, seems to have snapped a two-day losing streak to a four-week low touched earlier this Friday. The upbeat Household Spending data from Japan boosts the case for further interest rate hikes by the Bank of Japan (BoJ) amid the broadening domestic inflation. This, along with rising geopolitical tensions, drives some safe-haven flows towards the JPY.
Meanwhile, the US-UK trade deal adds to the optimism led by the US-China tariff negotiations over the weekend and eases US recession fears, which, in turn, could act as a headwind for the JPY. Furthermore, the Federal Reserve’s (Fed) hawkish pause on Wednesday should limit any meaningful US Dollar (USD) corrective slide from a nearly one-month high and limit the downside for the USD/JPY pair. Traders now look forward to Fed speakers for a fresh impetus.
Japanese Yen draws support from reviving safe-haven demand amid rising geopolitical tensions
- Government data released earlier this Friday showed that Japan’s household spending rose 0.4% in March and 2.1% from a year earlier, both surpassing market forecasts. Adding to this, expectations that sustained wage hikes will boost consumer spending and inflation in Japan suggest that the Bank of Japan may not abandon its rate-hike plans altogether.
- In fact, minutes from the BoJ’s monetary policy meeting held on March 18-19 revealed on Thursday that the central bank remains ready to hike interest rates further if inflation trends hold. This, in turn, backs the case for further policy tightening by the BoJ in 2025 and assists the Japanese Yen to gain some positive traction during the Asian session on Friday.
- Separately, Japanese real wages decreased for a third consecutive month in March. In fact, inflation-adjusted wages dropped 2.1% from a year earlier following a revised 1.5% fall in February and a 2.8% decline in January. Furthermore, the consumer inflation rate used to calculate real wages rose 4.2% YoY in March, down slightly from 4.3% in the previous month.
- The data adds to worries about Japan’s growth outlook amid the uncertainty over US tariffs and ahead of a first-quarter Gross Domestic Product report next week. This, in turn, could act as a headwind for the JPY amid the upbeat market mood, led by the optimism over the US-UK trade deal and the start of US-China tariff negotiations in Switzerland over the week.
- Meanwhile, positive developments help to ease market concerns that an all-out trade war might trigger a US recession. Adding to this, the Federal Reserve’s signal that it is not leaning towards cutting interest rates anytime soon, despite the heightened economic uncertainty, lifts the US Dollar to a four-week high, which, in turn, should lend support to the USD/JPY pair.
- There isn’t any relevant market-moving economic data due for release from the US on Friday. However, scheduled speeches from a slew of influential FOMC members will drive the USD demand later during the North American session. Furthermore, the broader risk sentiment should contribute to producing short-term trading opportunities on the last day of the week.
USD/JPY constructive technical setup supports prospects for the emergence of dip-buying
From a technical perspective, the USD/JPY pair’s overnight breakout through the 200-period Simple Moving Average (SMA) on the 4-hour chart could be seen as a key trigger for bullish traders. Moreover, oscillators on the daily chart have started gaining positive traction and are holding in bullish territory on hourly charts. This supports prospects for the emergence of some dip-buyers at lower levels, which should limit the downside for spot prices near the 145.00 psychological mark (200-period SMA on the 4-hour chart). That said, a convincing break below the said resistance-turned-support might prompt some technical selling and drag the currency pair to the next relevant support near the 144.45 region.
Meanwhile, bulls might now wait for a sustained move and acceptance above the 146.00 round figure before placing fresh bets. Some follow-through buying beyond the Asian session peak, around the 146.15-146.20 region, will reaffirm the near-term positive outlook and pave the way for a further near-term appreciating move for the USD/JPY pair. The subsequent move up could lift spot prices to an intermediate hurdle near the 146.75-146.80 region en route to the 147.00 mark. The momentum could extend further towards the 147.70 horizontal resistance before the pair aims to conquer the 148.00 round figure and climb further towards the 148.25-148.30 supply zone.
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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