The Japanese Yen faces downward pressure as global risk sentiment improves slightly. Despite expectations for a hawkish stance from the Bank of Japan (BoJ) and ongoing trade tensions that typically support safe-haven currencies, the Yen’s appeal wanes. Factors such as bets on potential rate cuts from the Federal Reserve could also act as a barrier to the Yen’s value against the US Dollar.
During the Asian trading session on Friday, the Yen lost ground against the US Dollar, reversing the gains of the previous day. This shift comes amid a more favorable view among investors, spurred by optimistic comments from government officials in Washington and Canada. Reports suggesting enough Democratic votes to prevent a government shutdown in the US contributed to a modest uptick in US equity futures, diminishing demand for the Yen as a safe haven.
Despite these trends, any significant drop in the Yen remains unlikely due to the current sentiment surrounding the BoJ’s future rate hikes. The growing consensus that Japan may soon raise interest rates has already led to a noticeable narrowing of the interest rate differential between Japan and other economies, providing stability for the Yen. With a generally bearish outlook on the US Dollar, driven by expectations for multiple Fed rate cuts this year, the gains for the USD/JPY pair could be capped.
Meanwhile, signs of increasing inflation in Japan provide the BoJ with room to implement rate hikes, ensuring that the yield on Japanese government bonds stays elevated. Preliminary results from Japan’s annual wage negotiations indicate average wage increases slightly over 5%. This supports expectations for continued inflation, contributing to a more robust outlook for the Japanese economy and its currency.
In contrast, the US Dollar remains weak near multi-month lows, burdened by market expectations for upcoming interest rate cuts by the Federal Reserve. Recent economic data, including a stable Producer Price Index and a lower annual inflation rate, reinforces this outlook. Attention now shifts toward upcoming data releases that may influence short-term trading decisions.
From a technical standpoint, the USD/JPY pair may encounter resistance around the 148.60 – 148.70 range, with further obstacles near the 149.00 level. Should it break above these levels, there could be a surge towards the psychological 150.00 level. On the downside, immediate support is seen at the 147.75 – 147.70 zone. A definitive fall below this range might lead to deeper declines, challenging the Yen to regain its footing amidst ongoing economic developments.
