The Japanese Yen (JPY) saw renewed buying interest at the start of the week, pushing it closer to its highest level since October against a broadly weaker US Dollar (USD). The Yen’s rally was driven by expectations of further interest rate hikes by the Bank of Japan (BoJ) and rising yields on Japanese government bonds (JGBs).
Japan’s labor ministry reported Monday that base pay surged by 3.1% in January, marking the largest increase in 32 years. However, real cash earnings fell by 1.8% due to persistent inflation. This mixed data, alongside expectations for continued substantial wage hikes in Japan, suggests growing inflationary pressures, potentially prompting further interest rate hikes by the BoJ and supporting the JPY.
BoJ expectations remain bullish, with JGB yields rising to their highest level since June 2009. This narrowing of the interest rate differential between Japan and other countries is further fueling demand for the lower-yielding JPY. Meanwhile, the USD remains under pressure, lingering near a multi-month low due to weaker-than-expected US employment data released on Friday. The February Nonfarm Payrolls report revealed just 151,000 new jobs, falling short of expectations and suggesting a slowdown in the US labor market.
The disappointing jobs report, combined with rising speculation that the Federal Reserve (Fed) may cut interest rates multiple times this year, weighed heavily on the USD. The Fed’s dovish stance, as indicated by Fed Chair Jerome Powell’s comments on Friday, contributed to the overall bearish sentiment surrounding the USD.
Additionally, market uncertainty surrounding US President Donald Trump’s trade policies, including the delayed tariffs on Canada and the imposition of a 25% tariff on steel and aluminum imports set to take effect on Wednesday, further dampened investor sentiment towards the USD, benefiting safe-haven assets like the JPY.
Technical Outlook: USD/JPY Bears Eye a Break Below 147.00
From a technical standpoint, the USD/JPY pair is under pressure, and a sustained break below the 147.00 level could trigger further declines, extending the pair’s two-month downtrend. The Relative Strength Index (RSI) on the daily chart is approaching oversold territory, suggesting the potential for near-term consolidation or a modest bounce before further downside momentum takes hold.
Immediate support for USD/JPY is at 146.50, followed by the psychological 146.00 mark. A break below these levels could lead to a further slide towards the 145.25-145.20 zone, with the 145.00 level acting as the next key support. On the upside, resistance is seen near the 148.00 level, with further gains capped near the 148.65-148.70 region. If USD/JPY pushes beyond this level, it could trigger a short-covering rally, sending the pair toward the 149.00 mark and beyond.
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