The Japanese Yen (JPY) showed signs of weakening during Thursday’s Asian session, retreating slightly from a multi-month high reached earlier in the week against the US Dollar (USD). While the Yen remains under pressure due to concerns over potential new tariffs from US President Donald Trump and a modest recovery in US Treasury bond yields, expectations that the Bank of Japan (BoJ) may continue raising interest rates are limiting aggressive downward moves for the Yen.
The recent rise in BoJ expectations is pushing Japanese government bond (JGB) yields higher, contrasting with US Treasury bond yields, which are near their lowest levels of the year. Traders are betting that the US economy could slow sharply due to Trump’s trade policies, prompting the Federal Reserve to reduce interest rates multiple times in 2025. This narrowing of the US-Japan yield differential may prevent further depreciation of the JPY, capping any gains for USD/JPY.
BoJ Rate Hike Expectations Support Yen Amid US Tariff Tensions
Trump’s criticism of Japan and China over currency devaluation, alongside the potential for new tariffs if the practice continues, has raised concerns about the future of US-Japan trade relations. This uncertainty, combined with a delay in tariffs on US automakers until next month, has helped ease some trade war fears and bolstered risk appetite. Consequently, the Yen, traditionally seen as a safe haven, has faced some downside pressure.
However, investor sentiment is still buoyed by expectations that the BoJ will continue tightening its monetary policy. This was reinforced by BoJ Deputy Governor Shinichi Uchida’s comments on Wednesday, which suggested that further adjustments to policy may be necessary if the outlook for Japan’s economy and prices remains favorable. As a result, yields on 10-year Japanese government bonds have risen to their highest levels since June 2009.
Meanwhile, the US Dollar continues to struggle amid concerns about the impact of President Trump’s trade barriers on US economic growth. The latest US ADP Employment report showed only 77,000 private sector jobs added in February, falling well short of the 140,000 expected. This, along with deteriorating consumer confidence, has raised market expectations that the Federal Reserve may begin cutting interest rates as early as June 2025.
US Dollar Bears Weighed Down by Weak Economic Data
Despite positive data showing continued expansion in the US service sector, the US Dollar remains weak, with the US Dollar Index (DXY) dropping for the fourth consecutive day and reaching its lowest level since early November. This trend is expected to limit the upside potential for the USD/JPY pair, with traders now turning their attention to Thursday’s Initial Jobless Claims data and Friday’s Nonfarm Payrolls report for further direction.
Technical Outlook: USD/JPY Vulnerable to Deeper Losses
From a technical perspective, the USD/JPY pair has been consolidating within a defined range over the past two weeks. Following the sharp decline from the 159.00 area earlier in the year, the pair is currently in a bearish consolidation phase. Oscillators on the daily chart remain in negative territory, suggesting that the path of least resistance is still to the downside.
A move below the intermediate support at 148.40 could bring the pair closer to the 148.00 level, a multi-month low touched on Tuesday. If this support is broken, further selling pressure could drive the USD/JPY pair towards the 147.35 area, with the 147.00 level acting as a key psychological support.
On the upside, immediate resistance lies in the 149.45-149.50 range, followed by the 149.75 zone and the key 150.00 level. A sustained push above this could trigger a short-covering rally, lifting the USD/JPY towards the next resistance at 150.55-150.60. However, any further advance could present a selling opportunity near the 151.00 mark, with the weekly high of 151.30 serving as the upper limit.
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