In the foreign exchange market’s dynamic landscape, the Japanese Yen (JPY) experienced a mixed start to the new week. Opening with a modest bullish gap, it soon attracted intraday sellers. However, the downward pressure on the Yen was mitigated, suggesting an underlying strength that could drive future appreciation.
The concern over harsher US reciprocal tariffs loomed large. Such tariffs could potentially harm Japan’s economy, leading investors to scale back their bets on early interest rate hikes by the Bank of Japan (BoJ). Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, emphasized on Monday the significant impact these tariffs could have on Japan – US economic relations. This statement cast a shadow over the Yen’s ability to fully capitalize on its early gains during the Asian trading session.
Multiple Factors Propelling the Yen’s Safe – Haven Appeal
Despite the headwinds, several factors were at play, supporting the Yen as a safe – haven asset. The ongoing risk – off sentiment in global markets, fueled by fears of a widening trade war and an impending recession, provided a significant boost. Asian stock markets and US equity futures tumbled at the week’s start, reflecting these concerns.
US President Donald Trump’s decision to impose a 10% baseline tariff on all imports and higher duties on major trading partners last Wednesday set off a chain reaction. In response, the European Union joined China and Canada in preparing retaliatory tariffs. This trade war escalation led to an extended sell – off in equity markets, making the Yen an attractive option for risk – averse investors.
Signs of broadening inflation in Japan also left the door open for further BoJ interest rate hikes in 2025. Additionally, the emergence of fresh US Dollar (USD) selling, driven by expectations that the Federal Reserve (Fed) would soon resume its rate – cutting cycle, contributed to capping the USD/JPY pair.
USD’s Resilience and Market Expectations
The US Dollar managed to preserve its modest recovery gains from Friday. These gains were spurred by the stronger – than – expected US Nonfarm Payrolls (NFP) report. The US economy added 228,000 new jobs in March, far exceeding the market expectation of 135,000. Federal Reserve Chair Jerome Powell’s hawkish comments also lent support to the greenback.
However, Powell acknowledged that Trump’s tariffs could have a more significant inflationary and economic impact than anticipated. Despite this, policy changes remain on hold for now. Market participants, though, are convinced that the Fed will resume its rate – cutting cycle at the June policy meeting and lower borrowing costs at least four times by the end of the year to support the economy. This expectation, combined with anti – risk flows, pushed the yield on the benchmark 10 – year US government bond below the 4.0% mark, curbing the USD bulls’ enthusiasm.
Technical Analysis: A Bearish Outlook for USD/JPY
From a technical perspective, the USD/JPY pair presents a bearish picture. Last week’s breakdown below the 61.8% Fibonacci retracement level of the September – March positive move served as a fresh trigger for bearish traders. Oscillators on the daily chart were firmly in negative territory and were not yet in the oversold zone, indicating that the path of least resistance for spot prices was downward.
Any recovery beyond the 147.00 mark (61.8% Fibonacci level) is likely to be seen as a selling opportunity, with resistance expected near the 147.70 region. If the 148.00 round figure is breached decisively, it could trigger a short – covering rally in the near term.
On the support side, levels such as 146.00, 145.45, the psychological 145.00 mark (which was the Asian session low), around 144.80, and the multi – month trough of around 144.55 (touched on Friday) could act as crucial support levels. A sustained sell – off below the 144.55 level could reaffirm the negative bias and potentially drive the USD/JPY pair further down towards the 144.00 round figure.
BoJ’s Policy Shift and Its Impact on the Yen
The Bank of Japan’s policies have been a significant factor in the Yen’s performance. Since 2013, the BoJ had been implementing an ultra – loose monetary policy, including Quantitative and Qualitative Easing (QQE), negative interest rates, and yield curve control, to stimulate the economy and boost inflation.
However, in March 2024, the BoJ lifted interest rates, signaling a departure from its ultra – loose stance. This shift was driven by factors such as a weaker Yen, rising global energy prices, and the prospect of increasing salaries in Japan, which led to inflation exceeding the BoJ’s 2% target. The change in policy has had a notable impact on the Yen’s value, reversing some of the depreciation trends seen in previous years.
Related Topics:
Japanese Yen Surges to Multi-Week High Against USD Following Trump’s Tariff Announcement
Yen Weakens Against Dollar Amid Trump Tariff Uncertainty
Japanese Yen’s Struggles Persist Amid PMI Woes and Policy Divergence
