The Japanese Yen (JPY) has experienced a notable decline against the US Dollar (USD), particularly after recent comments from former President Donald Trump regarding tariffs. After reaching a five-week high against the USD, the JPY saw a sharp reversal, with the USD/JPY pair climbing over 100 pips, surpassing the critical 155.00 level. Trump’s statements prompted a significant rebound in the USD, contributing to the Yen’s downward trajectory, though some support for the Yen persists due to shifting global risk perceptions.
Expectations surrounding the Bank of Japan’s (BoJ) potential interest rate hike this week have also played a role in moderating the Yen’s losses. As speculation grows about the BoJ’s possible shift in monetary policy, analysts note that the diminishing yield gap between US and Japanese bonds is making traders cautious about betting against the Yen. The market is currently pricing an 80% chance of a rate increase following a series of hawkish comments from BoJ officials alongside rising inflationary pressures in Japan.
In contrast, speculation that the US Federal Reserve may implement two interest rate cuts later this year has led to a decrease in US Treasury yields. This has introduced further uncertainty for the USD, and while recent inflation data indicates a potential easing, traders remain wary of the implications of Trump’s proposed tariffs on Canada and Mexico, which could reignite inflation fears.
With no significant economic data expected from either the US or Japan on Tuesday, market attention is centered on the BoJ’s upcoming two-day policy meeting. This decision is anticipated to shape the immediate outlook for the JPY.
From a technical standpoint, the USD/JPY pair has shown resilience below the 155.00 level, indicating that further declines may require a clear break beneath this support. If a downturn occurs, targets may include the 154.50 – 154.45 range and the 154.00 round figure. Conversely, surpassing the recent high near 156.25 could potentially lead to a rebound toward 157.00 and beyond, marking a test of the highs reached earlier in the year.
