The Japanese Yen is facing pressure against the US Dollar due to looming economic concerns sparked by tariff threats from the former US President. While the Yen is currently on the defensive, it is not exhibiting a strong bearish trend, especially given the speculation surrounding additional interest rate hikes by the Bank of Japan (BoJ). Furthermore, the recent decline in US Treasury yields, driven by expectations that the Federal Reserve may continue to lower rates into 2025, is likely to limit any significant downward movement for the Yen.
Market sentiment has been influenced by President Trump’s announced intentions to impose tariffs on various imports, which has contributed to a positive risk environment that undermines the safe-haven appeal of the Yen. Consequently, this has helped the USD/JPY exchange rate maintain a positive trajectory, hovering above the mid-155 range. However, traders may be opting for caution, holding off on making decisions until the Federal Open Market Committee (FOMC) announces its monetary policy stance later today.
On Tuesday, the Yen experienced a pullback from a recent six-week high, coinciding with Trump’s tariff announcements targeting sectors such as technology and pharmaceuticals, aimed at incentivizing domestic production. The US Dollar, meanwhile, rebounded from its lowest levels in over a month amid concerns that these protectionist policies could lead to renewed inflationary pressures. Economic data released by the US Census Bureau indicated a steeper decline in Durable Goods Orders, further complicating the outlook for consumer confidence, which also dropped in January.
The BoJ has communicated a cautious approach to monetary policy adjustments during recent meetings, suggesting that it may continue on a path toward rate normalization. This has led to optimism about potential rate hikes in Japan stemming from upcoming spring wage negotiations. Conversely, the market is largely anticipating potential interest rate cuts from the Federal Reserve as the year progresses, adding a layer of uncertainty.
With the FOMC meeting on the horizon, market participants are keenly awaiting any developments that could influence the USD/JPY pair. The exchange rate could face selling pressure if it approaches the 156.70 resistance level, while any significant rise beyond the 157.00 level may trigger short-covering. Conversely, support appears to be established around the 155.00 level, with critical thresholds below that warranting close attention for potential further declines in the pair.
