The Japanese Yen (JPY) continues to outperform the US Dollar (USD), with the USD/JPY pair reaching its lowest point since early October on Thursday. This strength in the Yen is primarily driven by rising expectations that the Bank of Japan (BoJ) will continue to raise interest rates, narrowing the yield gap between Japan and other major economies. Additionally, a global sell-off in bonds has boosted the benchmark 10-year Japanese government bond (JGB) yield, further supporting the Yen.
Uncertainty surrounding US President Donald Trump’s trade policies is adding pressure to the US Dollar. Despite recent reversals in tariffs on Mexico and Canada, the uncertainty continues to weigh on investor sentiment, contributing to a weaker USD. The safe-haven Yen benefits as investors seek stability amid ongoing global trade tensions. The recent U-turn on Trump’s tariff policies, including a one-month exemption for goods from Canada and Mexico covered by the USMCA, has created further volatility, leaving the USD on the defensive.
BoJ’s Hawkish Stance and Trade Tensions Provide Support for JPY
The Japanese Yen remains well-supported by growing expectations that the Bank of Japan will raise interest rates. BoJ Deputy Governor Shinichi Uchida recently indicated that the central bank is likely to increase rates in line with prevailing market expectations. Additionally, the ongoing bond market sell-off has propelled Japanese government bond yields to their highest levels since June 2009, bolstering the Yen further.
Meanwhile, trade concerns continue to dominate the US economic outlook. Trump’s trade policies and their potential long-term effects on US growth remain a key risk for markets. Federal Reserve officials, including Philadelphia Fed President Patrick Harker, have warned that signs of stress in the consumer sector could signal potential trouble for the US economy. These concerns have fueled speculation that the Fed may resume rate cuts, with investors pricing in potential rate cuts as soon as May.
Technical Outlook for USD/JPY
From a technical perspective, the recent breakdown below the 148.70-148.65 support zone has triggered bearish sentiment for USD/JPY. The Relative Strength Index (RSI) is approaching oversold levels, suggesting caution for bearish traders and the possibility of near-term consolidation or a modest bounce. Traders are advised to wait for stabilization before positioning for further downside in the pair.
If the pair attempts a recovery, resistance is expected around the 148.70 region, with further barriers at 149.00 and 150.00. On the downside, immediate support lies at the 147.30 level, followed by 147.00 and 146.40. Continued selling pressure could push the pair towards the psychological 145.00 mark.
Looking Ahead
The upcoming US Nonfarm Payrolls (NFP) report, expected to show a gain of 160,000 jobs in February and a steady unemployment rate of 4%, will be a key driver for USD/JPY price action. Any signs of weaker-than-expected data could provide further support for the Japanese Yen as traders await clearer guidance from the Federal Reserve regarding future rate cuts.
Related topics:
Goldman Sachs CEO Predicts Minimal Risk of U.S. Recession
Canadian Dollar and Mexican Peso Hit One-Month Lows Amid US Tariff Concerns
U.S. Farmers to Receive First $10 Billion of $30 Billion Aid Package Amid Market Struggles
