- The Japanese Yen attracts dip-buyers as traders digest reports of additional US tariffs.
- Rising September Fed rate cut bets undermine the USD and weigh on the USD/JPY pair.
- Mixed BoJ rate hike cues might cap any meaningful JPY gains amid a positive risk tone.
The Japanese Yen (JPY) reverses a modest Asian session dip against a broadly weaker US Dollar (USD), though it lacks bullish conviction amid reports that US President Donald Trump could impose an additional 15% tariff on all imports from Japan. Apart from this, the uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ) and a generally positive risk tone contribute to capping the safe-haven JPY.
Meanwhile, the BoJ last week left the door open for a further interest rate hike by the end of this year. In contrast, the Federal Reserve (Fed) is widely expected to lower borrowing costs at the September policy meeting, which keeps the USD bulls on the defensive and could offer support to the lower-yielding JPY. This suggests that the path of least resistance for the USD/JPY pair is to the downside and backs the case for further losses.
Japanese Yen traders seem non-committed amid trade concerns, BoJ uncertainty
- Asahi newspaper, citing a White House official, reported this Thursday that US President Donald Trump could impose an extra 15% tariff on all Japanese imports. The US will not apply exceptions to Japan for products that already have tariffs exceeding 15%, the report added further.
- This adds a layer of uncertainty on the back of the recent political developments in Japan. In fact, the ruling Liberal Democratic Party’s loss in the upper house election on July 20 raised concerns about Japan’s fiscal health amid calls from the opposition to boost spending and cut taxes.
- Moreover, data released on Wednesday showed that real wages in Japan fell for the sixth straight month in June and fueled worries about a consumption-led recovery. This suggests that prospects for Bank of Japan rate hikes could be delayed and undermines the Japanese Yen.
- The BoJ, however, has repeatedly said that it will hike interest rates further if growth and inflation continue to advance in line with its estimates. This is holding back the JPY bears from placing aggressive bets and acting as a tailwind for the USD/JPY pair despite a bearish US Dollar.
- The USD Index (DXY), which tracks the greenback against a basket of currencies, fell to a one-week low on Wednesday amid expectations for more interest rate cuts than previously expected by the Federal Reserve this year. The bets were lifted by the incoming weaker US macro data.
- The US Nonfarm Payrolls report for July pointed to a sharp deterioration in labor market conditions. Furthermore, the US ISM Services PMI released on Tuesday underscored the ongoing drag on the economy amid the uncertainty surrounding Trump’s erratic trade policies.
- This, in turn, affirmed market bets that the Fed will resume its rate-cutting cycle in September and lower borrowing costs by 25 basis points at least two times by the year-end. This keeps the US Treasury bond yields and the USD depressed, which could cap gains for the USD/JPY pair.
- Traders now look forward to the release of the US Weekly Initial Jobless Claims data, due later during the North American session. Apart from this, speeches from FOMC members could drive the USD demand. This, along with trade headlines, might influence the currency pair.
USD/JPY continues with its struggle to move beyond the 38.2% Fibo. immediate hurdle
From a technical perspective, this week’s rebound from the 200-period Simple Moving Average (SMA), around the 146.60 area, or the weekly low, and the subsequent move up favors the USD/JPY bulls. However, oscillators on the said chart are yet to confirm the positive outlook. Moreover, spot prices, so far, have been struggling to clear the 38.2% Fibonacci retracement level of the upswing from the July monthly low. This, in turn, makes it prudent to wait for a sustained move beyond the 147.80-147.85 region before positioning for any further gains. The currency pair might then surpass the 148.00 round figure and climb to the 148.45-148.50 region. The momentum could extend further towards the 149.00 neighborhood, or the 23.6% Fibo. retracement level.
On the flip side, the Asian session low, around the 147.15 region, closely followed by the 147.00 mark, could offer immediate support to the USD/JPY pair ahead of the 146.75 confluence. The latter represents the 200-period SMA on the 4-hour and the 50% Fibo. retracement level, which, if broken decisively, should pave the way for deeper losses. Spot prices might then accelerate the fall towards testing sub-146.00 levels, or the 61.8% Fibo. retracement level. Some follow-through selling below the latter could expose the 145.00 psychological mark.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Source: https://www.fxstreet.com/news/japanese-yen-drifts-lower-on-reports-of-extra-15-us-tariffs-on-all-imports-from-japan-202508070239