The Japanese Yen (JPY) retreated after hitting a fresh multi-month high against the US Dollar (USD) during the Asian session on Thursday. The pullback came as global risk sentiment showed signs of improvement, with a generally positive tone around equity markets. This improvement in market sentiment, along with a modest recovery in the US Dollar from recent multi-year lows, contributed to a 100-pip intraday recovery in the USD/JPY pair from the 141.60 area.
Despite the Yen’s retreat, it remains underpinned by the ongoing uncertainty surrounding the US-China trade war and global recession fears, which continue to create a cautious atmosphere. Traders are also eyeing expectations that the Bank of Japan (BoJ) may raise interest rates further, though concerns about the economic impact of US tariffs could delay any such decision.
Market Dynamics and BoJ’s Stance on Rate Hikes
Asian equity markets, along with US stock index futures, saw modest gains on Thursday, following a tech-led slump on Wall Street. This improvement in risk sentiment weighed on traditional safe-haven assets, including the Japanese Yen.
Former BoJ executive director Kenzo Yamamoto indicated that the BoJ would likely delay raising interest rates, wanting to first assess the progress of US-Japan trade talks. In line with this, BoJ Governor Kazuo Ueda signaled the possibility of pausing the rate-hiking cycle, acknowledging that US tariffs could hurt the Japanese economy. Sources from Reuters also reported that the BoJ is set to revise its economic growth forecasts downward at the upcoming April 30-May 1 meeting, due to heightened risks posed by US tariffs.
While there is some uncertainty about future policy actions, expectations of a potential US-Japan trade deal continue to provide optimism that could limit deeper JPY losses. Japan’s Prime Minister Shigeru Ishiba and Economy Minister Ryosei Akazawa have both expressed positive views on the ongoing trade talks, fueling hopes for a deal within the 90-day window.
US Dollar Recovery Amid Fed’s Hawkish Comments
The US Dollar found some buyers after Federal Reserve Chair Jerome Powell made hawkish remarks, signaling that the Fed is not inclined to cut interest rates in the near future due to persistent inflation and economic uncertainties, exacerbated by the trade policies of US President Donald Trump. Powell’s comments, coupled with a strong US Retail Sales report (+1.4% in March), provided support for the Greenback.
However, despite this recovery, financial markets continue to price in the possibility of the Fed lowering rates at least three times this year due to concerns that the tariffs-driven slowdown could weigh on the US economy.
Technical Outlook for USD/JPY: Bearish Bias Remains
From a technical standpoint, the recent breakdown and close below the 142.00 level has acted as a trigger for bearish traders. Negative indicators on the daily chart suggest that the path of least resistance for USD/JPY is to the downside. Any subsequent movement beyond the 143.00 mark is likely to be seen as a selling opportunity, with resistance near the 143.55-143.60 region, followed by 144.00.
On the downside, the 142.00 round figure is expected to provide immediate support, with the next key level around 141.60, the recent multi-month low. A continuation of the downtrend is likely if there is further selling pressure, which could push the pair toward lower targets as the negative bias persists.
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