The Japanese Yen (JPY) extended its rally against the US Dollar for a fourth consecutive session on Friday, touching a fresh weekly high during Asian trading hours. Despite a weaker-than-expected GDP reading for the first quarter, JPY demand remains firm as markets increasingly price in the likelihood of further interest rate hikes by the Bank of Japan (BoJ).
Japan’s preliminary Q1 GDP data revealed a 0.2% contraction quarter-over-quarter, deeper than the anticipated 0.1% decline and a reversal from the 0.6% expansion seen in the previous quarter. On an annualized basis, the economy shrank by 0.7%, marking its first contraction in a year. Still, expectations of BoJ tightening continue to drive demand for the Yen.
The BoJ’s Summary of Opinions from its April 30–May 1 meeting, released earlier this week, highlighted policymakers’ willingness to resume rate hikes if external pressures—particularly US trade tariffs—stabilize. BoJ Deputy Governor Shinichi Uchida reinforced this stance on Tuesday, signaling the central bank‘s commitment to a gradual tightening path.
Supporting the Yen further, trade negotiations between the US and Japan appear to be gaining momentum. Reports suggest Japan’s chief trade negotiator, Ryosei Akazawa, could travel to Washington next week for a third round of discussions. Japan is reportedly preparing a package of proposals aimed at securing US tariff relief, while also exploring measures to support firms affected by trade restrictions. Finance Minister Shunichi Kato has also expressed intent to meet US Treasury Secretary Scott Bessent to address currency issues.
These developments have overshadowed recent global risk-on sentiment sparked by easing trade tensions between the US and China. The two countries reached a 90-day truce to reduce tariffs, and US President Donald Trump signaled a willingness to engage directly with Chinese President Xi Jinping on future agreements. Despite this, the safe-haven JPY remains well-bid amid divergent monetary policy outlooks.
In contrast, the US Dollar remains on the defensive following softer inflation and consumer spending data. The US Producer Price Index (PPI) fell 0.5% in April, with the annual headline rate easing to 2.4%. Core PPI rose 3.1% year-over-year, down from March’s 4% increase, signaling weakening inflationary pressures. Additionally, April’s retail sales rose just 0.1%, far below the prior month’s revised 1.7% gain. These data points have strengthened expectations for Federal Reserve rate cuts, dragging Treasury yields lower and weighing on the USD.
Technical Outlook: USD/JPY Risks Deeper Pullback Below 145.00
Technically, USD/JPY has slipped below the 38.2% Fibonacci retracement of its recent recovery from this year’s low, breaching the 145.00 psychological level. Momentum indicators are beginning to favor the downside, suggesting potential for further losses. Immediate support lies at 144.55—the 200-period Simple Moving Average (SMA) on the four-hour chart—followed by the 50% retracement level near 144.30. A decisive break below these levels may shift the near-term bias toward the bears.
On the upside, resistance is expected near the session high of 145.70, with additional barriers at the 146.00 and 146.60 levels, the latter coinciding with the 23.6% Fibonacci retracement. A sustained move above 146.60 could spark short-covering, lifting USD/JPY towards 147.00 and possibly the 148.00 mark.
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