The Japanese Yen (JPY) continues to lose ground against the US Dollar (USD), with the USD/JPY pair rising above the mid-142.00s during the Asian session on Tuesday. The Yen is under pressure as signs of easing tensions between the US and China, the world’s two largest economies, fuel optimism and reduce demand for traditional safe-haven assets like the JPY. However, traders remain cautious, refraining from aggressive bearish bets on the Yen as they await the Bank of Japan‘s (BoJ) policy meeting later this week.
The BoJ is expected to announce its decision on Thursday, with no change in interest rates anticipated, given concerns over the fragile Japanese economy amid US tariff risks. However, Japan’s rising inflation presents the potential for further tightening by the BoJ. The uncertainty surrounding US President Donald Trump’s trade policies and persistent geopolitical risks add complexity to market sentiment, keeping investors on edge.
Geopolitical Tensions and Trade Optimism Continue to Shape JPY Outlook
The US Dollar’s strength is tempered by mixed signals regarding the state of US-China trade talks. US Treasury Secretary Scott Bessent noted that many countries, including China, had proposed favorable tariff solutions, fueling hopes that trade tensions might soon ease. However, US President Trump’s remarks about ongoing discussions contrast with China’s firm denial of any current tariff negotiations, adding an element of uncertainty.
Traders are also anticipating the BoJ’s cautious stance on further rate hikes, given the potential economic impact of US tariffs, which could shave off 0.5% of Japan’s GDP. Despite this, Japan’s rising inflation and significant pay increases could provide room for further monetary policy normalization this year. A swift trade agreement between the US and Japan could bolster the BoJ’s confidence in tightening policy.
Meanwhile, expectations are growing that the Federal Reserve may resume its rate-cutting cycle in June, potentially narrowing the interest rate differential between the US and Japan, which would benefit the JPY. Additionally, geopolitical risks, including the ongoing Ukraine conflict, keep the safe-haven appeal of the Yen intact.
Technical Outlook: USD/JPY Faces Resistance Near 142.60-142.65
Technically, the USD/JPY pair faces resistance around the 142.60-142.65 zone, with the 100-period Simple Moving Average (SMA) on the 4-hour chart limiting upside potential. The pair has struggled to sustain levels above the 144.00 mark, and with oscillators remaining in negative territory on both daily and hourly charts, a potential move lower is on the cards.
A break below the 142.00 round figure could trigger fresh selling, with the next support levels seen in the mid-141.00s, followed by intermediate support near 140.50. A decline below 140.00 would expose the multi-month low reached last week.
On the other hand, a move above the 142.65 level could prompt short-covering and push the USD/JPY pair towards the 143.00 mark, with further resistance seen at 143.40-143.45. A sustained rally above 144.00 would suggest the formation of a near-term bottom, opening the door for a more significant upside move.
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