The Japanese Yen has managed to recover after a brief two-day decline against the US Dollar, marking a move away from recent weekly lows. Factors contributing to this resurgence include ongoing concerns regarding trade tariffs implemented by former President Trump and expectations of continued interest rate hikes from the Bank of Japan (BoJ). Simultaneously, speculation of potential rate cuts by the Federal Reserve keeps the Dollar at a multi-month low, thereby restraining the upward momentum of the USD/JPY currency pair.
During the Asian trading session on Thursday, the Yen climbed higher against the Dollar, driven by an increased demand for safe-haven assets amid escalating trade tensions. The uncertainties surrounding Trump’s tariffs, including his recent imposition of a 25% tax on steel and aluminum imports, are spurring fears of a possible intensification of a trade war and bolstering the allure of the Yen. Additionally, an increase in expectations that the BoJ will pursue further rate hikes in response to rising inflation strengthens the Yen’s position.
Support for the Yen also stems from the rise in Japanese government bond yields. The narrowing yield gap between Japan and other nations provides a supportive backdrop for the lower-yielding Yen. Meanwhile, the Dollar remains under pressure, grappling with expectations that the Fed may be compelled to implement several rate cuts in the upcoming months in light of a slowing economy. The most recent data indicates a lower-than-expected annual increase in the US Consumer Price Index, further affirming these market sentiments.
In this context, market participants are now looking ahead to the upcoming release of the US Producer Price Index for additional cues. From a technical standpoint, the recent inability of USD/JPY to maintain levels above the key 149.00 level, coupled with bearish momentum indicators, suggests a likely continuation towards a downward trend. A breach below 148.00 could lead to further declines, while resistance levels above 149.00 remain critical points of interest for any potential recovery of the USD/JPY pair.
