The Japanese Yen attracts safe-haven flows amid trade uncertainties and rising geopolitical tensions.The divergent BoJ-Fed policy expectations undermine the USD/JPY pair amid a broadly weaker USD.Traders now look forward to the release of the US PPI for short-term impetus later this Thursday.
The Japanese Yen (JPY) retains intraday bullish bias through the Asian session on Thursday, which, along with sustained US Dollar (USD) selling, keeps the USD/JPY pair depressed near the 144.00 mark, just above the weekly low. The initial market reaction to positive news out of the high-stakes US-China trade talks fades quickly in the wake of US President Donald Trump’s fresh tariffs threat. Adding to this, rising geopolitical tensions in the Middle East and a generally weaker tone around the equity markets underpin the JPY’s safe-haven status.
Meanwhile, investors seem convinced that the Bank of Japan (BoJ) might push for tighter monetary conditions and hike interest rates again amid signs of broadening inflation in Japan In contrast, Wednesday’s softer US consumer inflation figures reaffirmed market expectations that the Federal Reserve (Fed) would lower borrowing costs further in 2025, dragging the US Dollar (USD) back to the monthly low. This turns out to be another factor that benefits the lower-yielding JPY, suggesting that the path of least resistance for the USD/JPY pair is to the downside.
Japanese Yen bulls retain control as trade uncertainties and geopolitical risks prompt safe-haven buyingUS President Donald Trump told reporters on Wednesday that he will set unilateral tariffs and send letters to trading partners in the next week or two, saying “this is the deal you can take it or leave it”. Earlier, US Treasury Secretary Scott Bessent told Congress that it is highly likely that the tariff pause would be extended to countries that are negotiating in good faith.The comments add a layer of uncertainty amid Trump’s rapidly shifting stance on trade policies, overshadowing the optimism over the US-China agreement on a plan to ease export controls and trade tensions. Meanwhile, the Wall Street Journal reported that China is imposing a six-month limit on rare-earth export licenses for US automakers and manufacturers.In return, US negotiators have agreed to ease some export restrictions on items such as jet engines, related components, and ethane — used in plastics manufacturing. The temporary arrangement reflects a fragile truce between the world’s two largest economies as both sides keep options open to escalate if tensions flare again and leverage it in future talks.A Reuters poll indicated that a slight majority of economists expect that the Bank of Japan will forego another interest rate hike this year. Investors, however, seem convinced that the BoJ would proceed with monetary tightening, marking a significant divergence from rising market bets that the Federal Reserve (Fed) will resume its rate-cutting cycle later this year.The US Bureau of Labor Statistics (BLS) reported on Wednesday that the headline Consumer Price Index (CPI) rose from 2.3% in the previous month to the 2.4% annualized pace in May, missing consensus estimates of 2.5%. Meanwhile, the core gauge, which excludes volatile food and energy prices, climbed 2.8% during the reported month, matching April’s increase.Traders were quick to react and are now pricing in a nearly 70% chance that the Federal Reserve will cut its interest rate by 25 basis points (bps) in September, up from 57% before the data. This leads to a further decline in US Treasury bond yields and drags the US Dollar back to the monthly swing low, which, in turn, exerts pressure on the USD/JPY pair.On the geopolitical front, Israel reportedly may soon launch a strike on Iran’s nuclear sites. To prepare for the possibility, the US State Department authorized some staff to leave Iraq, while the Pentagon is allowing military families to depart US bases across the region voluntarily. This comes as Trump expressed doubt about reaching a nuclear deal with Iran.The USD/JPY pair dropped to a fresh weekly low during the Asian session on Thursday, though it managed to rebound a few pips in the last hour and currently trades around the 144.00 mark, still down over 0.35% for the day. Traders now look forward to the release of the US Producer Price Index (PPI), which could produce short-term opportunities.USD/JPY technical setup backs the case for deeper losses, further below the 143.00 mark
From a technical perspective, the overnight subsequent pullback from a two-week high and the subsequent slide fall below the 144.55-144.50 horizontal support favors the USD/JPY bears. Moreover, slightly negative oscillators on hourly/daily charts suggest that the path of least resistance for spot prices is to the downside. Some follow-through selling below the Asian session low, around the 143.70 area, will reaffirm the bearish outlook and pave the way for a fall towards the 143.00 round figure en route to the 142.62-142.60 horizontal support.
On the flip side, the 144.55 area, or the Asian session peak, now seems to act as an immediate hurdle, above which a fresh bout of short-covering could allow the USD/JPY pair to make a fresh attempt towards conquering the 145.00 psychological mark. Bulls, however, might wait for a subsequent strength beyond the 145.45 region, or a two-week high touched on Wednesday, before positioning for additional gains. Spot prices might then accelerate the positive momentum towards the 146.00 round figure.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
AloJapan.com