The Japanese yen (JPY) regained traction on Tuesday, recovering from earlier losses in the Asian session to trade near a one-week high against the US dollar (USD). The resurgence in the yen was underpinned by growing market conviction that the Bank of Japan (BoJ) will raise interest rates again in 2025, bolstering the currency’s appeal.
Meanwhile, the greenback faced renewed headwinds amid persistent speculation that the Federal Reserve (Fed) will implement additional rate cuts later this year. This dynamic dragged the USD/JPY pair below the critical 145.00 psychological threshold.
Despite last Friday’s unexpected downgrade of the US government’s credit rating by Moody’s—from “Aaa” to “Aa1”—the reaction across global markets remained muted. Optimism surrounding global trade, particularly easing tensions between the US and China, lifted equities and curtailed demand for traditional safe havens such as the yen. This temporarily supported the USD/JPY pair, although the broader bias continues to favor the Japanese currency.
BoJ Hawkish Signals Support Yen Outlook
BoJ Deputy Governor Shinichi Uchida added fuel to the yen’s bullish momentum on Monday, signaling that underlying inflation in Japan is expected to re-accelerate, warranting further policy tightening if economic indicators align. Reinforcing this outlook, the BoJ’s latest Summary of Opinions revealed a continued willingness among policymakers to consider additional rate hikes, particularly if US-China tariff stability persists.
Japan’s Finance Minister, Katsunobu Kato, also hinted at potential discussions on foreign exchange matters with US Treasury Secretary Janet Yellen at the upcoming G7 finance leaders’ meeting. However, media reports indicate that Yellen may not attend, potentially limiting the impact of those discussions.
Fed Officials Push Back on Immediate Rate Cuts
In the US, inflation data released last week—including the Consumer Price Index (CPI) and Producer Price Index (PPI)—suggested easing price pressures. Meanwhile, weaker-than-expected retail sales figures fueled concerns of sluggish economic momentum in the months ahead. Despite this, top Fed officials, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic, indicated on Monday that rate cuts are unlikely before September. Fed Vice Chair Philip Jefferson echoed a cautious stance, emphasizing the risks of entrenched inflation.
Markets, however, remain priced for two 25-basis-point rate reductions by the end of 2025, revealing a disconnect between Fed guidance and investor expectations.
Geopolitical Tensions Persist
On the geopolitical front, former President Donald Trump claimed on his Truth Social platform that Russia and Ukraine have agreed to initiate ceasefire negotiations. Meanwhile, Israel announced a broader ground offensive in Gaza’s Khan Yunis, maintaining elevated geopolitical risks. These developments are likely to limit any sharp yen depreciation, further reinforcing downside pressure on USD/JPY.
Technical Outlook: USD/JPY Faces Pressure Below 145
From a technical standpoint, the USD/JPY pair remains vulnerable as long as it trades below the 38.2% Fibonacci retracement of the April–May uptrend. Hourly chart oscillators continue to flash bearish signals. Any near-term recovery is expected to face resistance near the 146.00 mark, with a breakout potentially triggering a move toward the 146.60 area and the 23.6% Fibonacci level, en route to 147.00.
On the downside, initial support lies around 144.65—a level tested on Monday. A decisive drop below the 144.30–144.25 zone, marked by the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level, could open the door for a deeper slide toward the 144.00 handle and possibly the 143.75–143.70 support region.
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