- The Japanese Yen ticks lower as a US-Vietnam trade deal undermines safe-haven assets.
- BoJ rate hike expectations should limit deeper JPY losses amid a bearish USD sentiment.
- Traders await the US NFP report before placing fresh directional bets around USD/JPY.
The Japanese Yen (JPY) trades with a negative bias against a mildly positive US Dollar (USD) for the second straight day, with the USD/JPY pair moving back closer to the 144.00 mark during the Asian session on Thursday. A trade agreement between the US and Vietnam eased concerns over prolonged trade tensions, boosting investors’ confidence and undermining the safe-haven JPY. Adding to this, US President Donald Trump’s threat to impose more tariffs on Japan over its alleged unwillingness to buy American-grown rice turns out to be another factor weighing on the JPY.
Meanwhile, investors seem convinced that the Bank of Japan (BoJ) will stay on the path of monetary policy normalization amid the broadening inflation in Japan. This marks a significant divergence in comparison to a dovish stance adopted by other major central banks, including the US Federal Reserve (Fed), which should help limit losses for the lower-yielding JPY. Traders now look forward to the release of the US Nonfarm Payrolls (NFP), which will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair later during the North American session.
Japanese Yen struggles to lure buyers amid reduced safe-haven demand
- Bank of Japan Governor Kazuo Ueda said on Tuesday that the current policy rate was below neutral and additional interest rate hikes will depend on inflation dynamics. Consumer inflation in Japan has exceeded the BoJ’s 2% target for more than three years as companies continue to pass on rising raw material costs. This backs the case for further tightening by the central bank and acts as a tailwind for the Japanese Yen.
- In contrast, Federal Reserve Chair Jerome Powell, when asked if July was too soon to consider rate cuts on Tuesday, answered that it’s going to depend on the data. Traders ramped up their bets and are now pricing in nearly a 25% chance of a rate cut by the Fed at the July 29-30 meeting. Moreover, a 25 basis points rate cut in September is all but certain, and expectations for two rate reductions by the end of this year are high.
- Meanwhile, US President Donald Trump escalated his attacks on Powell and called for the Fed chief to quit immediately. This further raises concerns about the central bank’s independence and keeps the US Dollar bulls on the defensive. Also weighing on the US currency is the disappointing release of the US ADP report on Wednesday, which showed that private payrolls unexpectedly lost 33,000 jobs in June.
- Moreover, the previous month’s reading was revised down to show an addition of 29,000 jobs compared to 37,000 reported initially. The data suggested a sluggish hiring environment and fueled speculations that the US Unemployment Rate might tick up to at least 4.3% in June from 4.2% in May. Hence, the market focus will remain glued to the closely-watched US Nonfarm Payrolls (NFP) report due later this Thursday.
- On the trade-related front, Trump expressed frustration over stalled US-Japan trade negotiations and cast doubt about reaching an agreement before the July 9 deadline. Furthermore, Trump suggested that he could impose a tariff of 30% or 35% on imports from Japan, above the tariff rate of 24% announced on April 2, in retaliation for the latter’s alleged unwillingness to buy American-grown rice.
USD/JPY needs to surpass 200-SMA on H4, around 144.30 for bulls to seize control
From a technical perspective, the overnight rejection near the 200-period Simple Moving Average (SMA) on the 4-hour chart and negative oscillators suggest that the path of least resistance for the USD/JPY pair is to the downside. Some follow-through selling below the 143.40-143.35 area would reaffirm the bearish outlook and drag spot prices further towards the 143.00 round figure. This is followed by the weekly low, around the 142.70-142.65 region, which, if broken, should pave the way for a fall towards the May monthly swing low, around the 142.15-142.10 region.
On the flip side, any positive move back above the 144.00 mark might continue to face stiff resistance near the 200-period SMA on the 4-hour chart, currently pegged near the 144.30 region. A sustained strength above the latter, however, could trigger a short-covering move and lift the USD/JPY pair beyond the 144.65 horizontal zone, towards the 145.00 psychological mark. The momentum could extend further towards the 145.40-145.45 supply zone, which, if cleared decisively, might shift the near-term bias in favor of bullish traders.
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.
Source: https://www.fxstreet.com/news/japanese-yen-remains-on-the-front-foot-against-a-bearish-usd-ahead-of-us-nfp-report-202507030222