The Japanese Yen (JPY) saw a boost during the Asian session on Tuesday as it attracted safe-haven flows in response to US President Donald Trump’s new tariffs on steel and aluminum imports. The tariffs, which apply universally to all steel and aluminum imports, threaten to strain relations with key trading partners, including Japan. This has sparked concerns about global trade stability and contributed to the JPY’s appeal as a safe-haven currency.
On top of this, expectations surrounding the Bank of Japan’s (BoJ) potential interest rate hikes have provided further support for the Japanese Yen. Recently, BoJ officials, including Governor Kazuo Ueda, have suggested the possibility of tightening monetary policy further, especially as Japan continues to face rising inflation. Some BoJ members even indicated the need to hike rates to 1% by the second half of the fiscal year, which begins in April, to combat the ongoing inflationary pressures.
The USD/JPY pair, however, remains pressured by a combination of factors. Trump’s imposition of tariffs, while supportive for the JPY in terms of safe-haven demand, also threatens to destabilize Japan’s economy, particularly in industries affected by the tariffs. This contributes to a bearish outlook for the JPY, though the currency continues to find support amid these concerns.
Technical Breakdown of USD/JPY
From a technical standpoint, the USD/JPY pair has faced resistance near the 152.50 mark, which represents a confluence of key technical levels, including the 100-day and 200-day Simple Moving Averages (SMAs). The pair failed to maintain its momentum above this level, and this resistance has led to a subsequent pullback.
The bearish bias for the pair is supported by indicators, with oscillators on the daily chart remaining in negative territory, suggesting further downside potential. If the USD/JPY pair continues to slide, support may be found near the 151.30 horizontal zone, followed by stronger support at the 151.00-150.90 area. A breach of these levels could send the pair to test the psychological 150.00 mark, with intermediate support near 150.55.
However, there are upside risks as well. If the pair manages to break above the 152.50 resistance level, this could trigger a short-covering rally, potentially pushing the pair back toward the 153.00 round figure, with a further move capped near the 153.75 region.
Upcoming Key Events: Fed Testimony and US Inflation Data
Market participants will be closely watching U.S. economic data and Federal Reserve Chair Jerome Powell’s two-day congressional testimony starting Tuesday. Powell’s comments on the outlook for interest rates and inflation will be crucial in determining the future trajectory of the U.S. Dollar and, by extension, the USD/JPY pair. If Powell signals a hawkish stance, supporting the U.S. Dollar, the bearish outlook for USD/JPY could be mitigated.
Moreover, Wednesday’s U.S. consumer inflation report will be an important catalyst for the U.S. Dollar and could provide further direction for the USD/JPY pair. Strong inflation data could reinforce expectations for a more prolonged hawkish Fed policy, potentially supporting the U.S. Dollar and keeping the JPY under pressure.
In summary, while the Japanese Yen remains supported by both safe-haven demand and BoJ rate hike expectations, the broader market dynamics, including U.S. economic data and Trump’s tariffs, are likely to determine the path forward for the USD/JPY pair. A break below key support levels would reinforce the bearish bias, while a sustained break above resistance at 152.50 could trigger a short-covering rally.
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