The Japanese Yen (JPY) has shown resilience against the US Dollar (USD) for the second consecutive day, with the USD/JPY pair drifting below the mid-154 range during the Asian trading session. This momentum is fueled by growing confidence among investors that the Bank of Japan (BoJ) will implement additional interest rate hikes. Additionally, a narrowing yield differential between the US and Japan provides further support for the low-yielding Yen.
However, caution prevails as concerns regarding potential trade tensions stemming from the US administration may temper aggressive betting on the Yen’s strength. The recent pause in the Federal Reserve’s interest rate adjustments contributes to a stable USD, which could limit falls in the USD/JPY pair. Market participants are also closely watching the European Central Bank’s upcoming meeting, which could introduce volatility and impact demand for the JPY as a safe-haven currency.
Recent insights from the BoJ suggest that officials are contemplating the neutral interest rate to guide future rate hikes. Former board member comments point to factors such as rising wages and solid economic growth, providing the central bank with the necessary impetus to pursue a gradual increase in borrowing costs.
The Federal Reserve’s decision to maintain its interest rates, accompanied by a hawkish outlook, reinforces expectations that rates may stay elevated for an extended period. Federal Reserve Chair commentary indicates a careful approach to monetary policy adjustments amid uncertainties tied to potential inflationary pressures linked to trade policies.
In terms of the technical outlook, the USD/JPY pair may test the multi-week low around the 153.70 level. A recent breakdown beneath the 155.00 psychological level highlights a shift in market dynamics, supported by bearish signals from oscillators on daily charts. Should the pair attempt a rebound, it could encounter resistance near the 155.00 figure and then the 155.35 – 155.40 region. A significant upward move beyond 156.00 may provoke a wave of short-covering, potentially pushing the pair towards the 156.70 – 156.75 area and beyond.
