- The Japanese Yen attracts buyers for the second straight day amid a combination of supporting factors.
- A federal appeals court reinstates Trump’s tariffs and revives demand for the traditional safe-haven JPY.
- Japan’s upbeat data reaffirms bets for more BoJ rate hikes this year and lends additional support to the JPY.
The Japanese Yen (JPY) trims a part of modest intraday gains against a broadly recovering US Dollar (USD), though it retains its positive bias amid a combination of supporting factors. A federal appeals court on Thursday paused a recent decision to block US President Donald Trump’s sweeping tariffs and tempers investors’ appetite for riskier assets. This is evident from a weaker sentiment around the equity markets and acts as a tailwind for the safe-haven JPY.
Furthermore, Japan’s upbeat macro data released earlier today, including strong Tokyo consumer inflation figures, reaffirmed bets that the Bank of Japan (BoJ) will raise interest rates further. This marks a big divergence in comparison to the growing acceptance that the Federal Reserve (Fed) will lower borrowing costs again in 2025 and favors the JPY bulls. Traders, however, opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index.
The Japanese Yen sticks to upbeat domestic data-inspired gains amid trade uncertainty
- A federal appeals court paused a separate trade court ruling and reinstated US President Donald Trump’s sweeping trade tariffs late Thursday. This adds a layer of uncertainty in the markets and tempers investors’ appetite for riskier assets, which, in turn, benefits the safe-haven Japanese Yen.
- The Statistics Bureau of Japan reported this Friday that the headline Consumer Price Index (CPI) in Tokyo – Japan’s capital city – rose 3.4% from a year earlier in May as compared to 3.5% in the previous month. Meanwhile, a gauge that excludes volatile fresh food climbed a more than two-year high.
- In fact, the Core CPI came in at 3.6% YoY following a 3.4% rise in April and exceeded median market forecasts for a 3.5% gain. Furthermore, a separate index that strips away the effects of both fresh food and fuel costs rose 3.3% in May in the year to May after a 3.1% rise recorded in April.
- The Tokyo CPI has exceeded the Bank of Japan’s 2% target for three straight years and pointed to sticky food inflation. This will keep the central bank under pressure to hike rates further, though the uncertainty over US tariffs might force the BoJ to maintain the wait-and-see approach.
- Separate data showed that Japan’s Industrial Production shrank 0.9% in April, marking a reversal from a 0.2% rise in March. The contraction, however, was smaller than anticipated. Moreover, a survey revealed that manufacturers expect output to increase by 9.0% in May and drop by 3.4% in June.
- Adding to this, Japan’s Retail Sales rose more than expected, by 3.3% YoY in April, compared to 3.1% in the prior month. This comes on top of expectations that bumper wage hikes will boost private consumption and backs the case for further policy normalization by the BoJ.
- From the US, the second Q1 GDP estimate published by the Bureau of Economic Analysis on Thursday showed that the economy contracted by 0.2% annualized rate during the January-March period. The reading, however, was better than the 0.3% fall initially expected and consensus forecast.
- The US Department of Labor reported that the number of Americans who filed for unemployment insurance for the first time, known as Initial Jobless Claims, climbed to 240K for the week ending May 24. This marked a substantial increase from the previous week’s revised tally of 226K.
- The market focus now shifts to the release of the US Personal Consumption Expenditure (PCE) Price Index. The crucial data will influence market expectations about the Fed’s rate-cut path, which, in turn, should provide some meaningful impetus to the US Dollar and the USD/JPY pair.
USD/JPY is likely to attract fresh sellers near the 144.25-144.30 pivotal resistance
From a technical perspective, the overnight failure near the 61.8% Fibonacci retracement level of the recent downfall from the monthly peak and the subsequent fall favors the USD/JPY bears. Moreover, negative oscillators on daily/hourly charts suggest that the path of least resistance for spot prices is to the downside. Some follow-through selling below the 143.45 region will reaffirm the bearish outlook and drag the pair to the 143.00 mark. The downward trajectory could extend further towards the 142.40 intermediate support en route to the 142.10 area, or the monthly low touched on Tuesday.
On the flip side, the 144.25-144.30 region now seems to act as an immediate hurdle, above which the USD/JPY pair could aim to reclaim the 145.00 psychological mark. A sustained strength beyond the latter should pave the way for a move toward the next relevant hurdle near the 145.65 horizontal zone en route to the 146.00 round figure and the overnight swing high, around the 146.25-146.30 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.
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