The USD/JPY pair came under fresh selling pressure on Monday, sliding to a one-week low near 144.80 during the Asian session. The fundamental outlook favors further downside, supporting the continuation of the recent retracement from last week’s nearly six-week high.
A growing consensus that the Bank of Japan (BoJ) will implement additional interest rate hikes in 2025 remains a key driver supporting the Japanese Yen (JPY). Adding to the yen’s appeal as a safe haven, Moody’s downgraded the US government’s sovereign credit rating by one notch to “Aa1” last Friday, citing concerns over America’s escalating debt burden. This move has dampened investor appetite for riskier assets, benefiting traditional safe-haven currencies like the JPY.
Meanwhile, expectations that the Federal Reserve (Fed) will cut interest rates amid easing inflation and a forecast of prolonged sluggish US growth continue to weigh on the US Dollar (USD), exerting further pressure on USD/JPY at the start of the week. However, the pair’s inability to decisively break below the psychological 145.00 level calls for caution among bearish traders before targeting deeper losses.
With no major US economic data scheduled for release on Monday, market direction will likely hinge on remarks from key Federal Open Market Committee (FOMC) members and broader shifts in risk sentiment, which will influence demand for the yen. The divergence in monetary policy outlooks between the BoJ and Fed underpins the near-term bearish bias on USD/JPY, making any rallies vulnerable to selling pressure and likely capped.
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