- The Japanese Yen weakens across the board on Thursday in reaction to the tariff-block news.
- The USD benefits from Wednesday’s hawkish FOMC Minutes and supports the USD/JPY pair.
- The divergent BoJ-Fed policy expectations keep a lid on any further gains for the currency pair.
The Japanese Yen (JPY) recovers slightly from a two-week low touched against a broadly stronger US Dollar (USD) during the Asian session on Thursday, though it lacks bullish conviction. News that a US federal court blocked President Donald Trump’s “Liberation Day” tariffs from going into effect boosts investors’ confidence and triggers a fresh wave of the global risk-on trade. This continues to undermine demand for traditional safe-haven assets, including the JPY.
Moreover, worries about the debt load in Japan weighing on the JPY. The USD, on the other hand, benefits from Wednesday’s hawkish FOMC Minutes, which contributes to the USD/JPY pair’s bid tone for the fourth straight day. Traders, however, are still pricing in the possibility that the Fed will lower borrowing costs further. This marks a big divergence in comparison to hawkish Bank of Japan (BoJ) expectations and helps limit losses for the lower-yielding JPY.
Japanese Yen maintains its heavily offered tone as tariff news undermines demand for safe-haven assets
- US President Donald Trump’s proposed reciprocal trade tariffs were blocked by the Court of International Trade on Wednesday. The court ruled that the president overstepped his authority by imposing tariffs on goods from nearly every country in the world.
- The global risk sentiment gets a strong lift following the court’s order, with Wall Street futures and equities across Asia rising sharply on Thursday. This undermines demand for traditional safe-haven assets, including the Japanese Yen, during the Asian session.
- Demand at an auction of Japan’s longest-tenor bonds on Wednesday fell to the lowest since July and added to worries about the fiscal health of the economy. This further drives flows away from the JPY and pushes the USD/JPY pair higher for the fourth straight day.
- Meanwhile, traders have been pricing in the possibility that the Bank of Japan will hike interest rates again this year amid signs of broadening inflation in Japan. Hence, the focus will remain glued to the release of the Tokyo Consumer Price Index on Friday.
- Minutes of the Federal Reserve’s May 6-7 policy meeting released on Wednesday revealed a consensus to maintain the wait-and-see approach on interest rates amid the uncertainty about the economic outlook and trade policies. The outlook supports the US Dollar.
- The CME Group’s FedWatch Tool, however, indicates a greater chance that the US central bank might still deliver at least two 25 basis point rate cuts this year. This marks a big divergence in comparison to hawkish BoJ expectations and favors the JPY bulls.
- Market participants now look forward to Thursday’s US economic docket – featuring the release of the Prelim Q1 GDP print, the usual Weekly Initial Jobless Claims, and Pending Home Sales data. This, along with Fedspeaks, might influence the USD demand.
USD/JPY struggles to find acceptance above the 146.00 mark, or the 61.8% Fibo. retracement level
From a technical perspective, the USD/JPY pair stalls its strong intraday move up near the 50% retracement level of the recent downfall from the monthly peak amid a slightly overbought Relative Strength Index (RSI) on hourly charts. That said, oscillators on the daily chart have just started gaining positive traction and support prospects for an extension of the weekly uptrend. Hence, any corrective pullback below the 145.35 region, or the 38.2% Fibonacci retracement level could be seen as a buying opportunity and remain limited near the 145.00 psychological mark. The latter is near the 200-period Simple Moving Average (SMA) on the 4-hour chart, which if broken will negate the near-term positive outlook.
On the flip side, the USD/JPY bulls might now await sustained strength and acceptance above the 146.00 mark before placing fresh bets. Spot prices might then accelerate the positive move towards the 146.70-146.75 intermediate hurdle en route to the 147.00 round figure and the next relevant barrier near the 147.60 supply zone. Some follow-through buying should allow the currency pair to climb further beyond the 148.00 mark, towards the monthly swing high, around the 148.65 region.
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.
Read the full article here
