- The Japanese Yen struggles to gain any meaningful traction amid trade jitters and reduced BoJ rate hike bets.
- Furthermore, domestic political uncertainty turns out to be another factor that acts as a headwind for the JPY.
- Diminishing odds for an immediate rate cut by the Fed lend some support to the USD and the USD/JPY pair.
The Japanese Yen (JPY) languishes near a three-week low against its American counterpart during the Asian session on Monday and seems vulnerable amid a combination of negative factors. Investors remain worried about the potential economic fallout from higher US tariffs. This, along with declining real wages and signs of cooling inflation in Japan, should allow the Bank of Japan (BoJ) to forgo rate hikes in 2025. Apart from this, domestic political uncertainty continues to undermine the JPY.
Meanwhile, the global risk sentiment remains fragile in the wake of US President Donald Trump’s fresh threat to impose a 30% tariff on imports from Mexico and the European Union (EU) starting on August 1. This, in turn, is holding back traders from placing aggressive bearish bets around the safe-haven JPY. That said, reduced bets for an immediate interest rate cut by the Federal Reserve (Fed) act as a tailwind for the US Dollar (USD) and should offer some support to the USD/JPY pair.
Japanese Yen bears have the upper hand amid trade jitters, reduced BoJ rate hike bets
- In a further escalation of trade wars, US President Donald Trump announced new tariffs on two of the biggest trade partners – Mexico and the European Union – in separate letters on Saturday. This, in turn, tempers investors’ appetite for riskier assets and benefits the safe-haven Japanese Yen at the start of a new week.
- Earlier last week, Trump issued tariff notices to more than 20 countries, including Japan, and also a 50% tariff on copper imports. This comes on top of declining real wages and signs of cooling inflation in Japan, which, along with domestic political uncertainty, could allow the Bank of Japan to forgo raising rates this year.
- Recent media polls raised doubts about whether Japan’s ruling coalition of the Liberal Democratic Party (LDP) and Komeito will be able to secure enough seats to maintain their majority at the upper house election on July 20. This adds a layer of uncertainty and should keep a lid on any meaningful JPY appreciation.
- Traders pared their bets for a rate cut by the Federal Reserve later this month in anticipation of worsening inflation as a result of higher import taxes and a still resilient US labor market. This keeps the US Dollar close to a nearly three-week top touched earlier this Monday and offers support to the USD/JPY pair.
- Traders now look forward to the release of US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Wednesday, respectively. The data should provide cues about the Fed’s rate-cut path, which, along with speeches from influential FOMC members, will drive the USD.
- Meanwhile, the aforementioned fundamental backdrop warrants some caution for the JPY bulls and backs the case for the emergence of some dip-buying around the USD/JPY pair.
USD/JPY seems poised to climb further to 148.00; 100-day SMA breakout in play
Last week’s sustained breakout through and a daily close above the 100-day Simple Moving Average (SMA) for the first time since February 2025 was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the currency pair is to the upside. Some follow-through buying above the 147.50-147.55 region will reaffirm the constructive setup and lift spot prices to the 148.00 mark or the June swing high. The subsequent move up could extend further towards the May swing high, around the 148.65 region, en route to the 149.00 mark.
On the flip side, any corrective pullback could be seen as a buying opportunity near the 146.60-146.55 region. This is closely followed by the 146.25 intermediate support and the 146.00 round figure. Some follow-through selling, leading to a subsequent fall below the 100-day SMA, currently pegged near the 145.80 region, might shift the bias in favor of the USD/JPY bears and pave the way for a decline towards the 145.50-145.45 area en route to 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-hangs-near-multi-week-low-against-usd-as-trade-jitters-temper-boj-rate-hike-bets-202507140249