The Japanese Yen (JPY) slipped slightly from a fresh monthly peak against a broadly weaker US Dollar (USD) during Monday’s Asian session, as growing trade optimism weighed on traditional safe-haven assets. Despite this modest pullback, significant JPY depreciation appears unlikely, buoyed by hopes for a Japan-US trade agreement and expectations that the Bank of Japan (BoJ) will continue raising interest rates.
Market sentiment reflects a stark divergence between the Federal Reserve’s (Fed) anticipated rate cuts in 2025 and the BoJ’s hawkish stance, supporting the lower-yielding yen and advising caution against aggressive bullish bets on the USD/JPY pair. As such, upward moves in USD/JPY may attract sellers, risking a quick reversal.
Following a third round of Japan-US trade talks, Prime Minister Shigeru Ishiba stated Tokyo aims to advance tariff discussions with the US, targeting a breakthrough by next month’s G7 summit. Japan’s chief tariff negotiator, Ryosei Akazawa, revealed plans to arrange further talks and hopes to meet US Treasury Secretary Scott Bessent soon.
Meanwhile, hotter-than-expected Japanese consumer inflation figures, coupled with rising wage expectations, keep the door open for additional BoJ tightening. BoJ officials recently signaled readiness to hike rates if economic and price conditions improve, though traders expect tariffs and trade flows will be key factors in upcoming policy decisions.
Geopolitical tensions add complexity, with Russia launching the largest aerial attack on Ukrainian cities to date and US President Donald Trump threatening new sanctions. In the Middle East, Israeli strikes killed at least 38 people in Gaza amid plans for full territorial control. Meanwhile, Trump’s sweeping tax cut and spending bill threatens to swell the US deficit by $4 trillion over ten years, fueling speculation the Fed may ease monetary policy further this year.
This backdrop has pushed the US dollar to near one-month lows, benefiting the yen and bolstering expectations for continued USD/JPY depreciation. Attention now shifts to key US data releases this week, including Durable Goods Orders, Preliminary GDP, and the Personal Consumption Expenditure (PCE) Price Index, alongside Wednesday’s FOMC meeting minutes and Friday’s Tokyo CPI — all poised to influence USD/JPY dynamics.
From a technical standpoint, USD/JPY faces resistance near 143.00, just below last week’s breakdown of the 61.8% Fibonacci retracement of the April-May rally. Negative momentum indicators suggest the pair’s path of least resistance is downward, with a break below 142.00 likely to extend losses toward 141.55 and then the 141.00 level. Further declines could test the year-to-date low under the psychological 140.00 mark seen in late April.
On the upside, a rebound past the 143.10 Asian session peak could trigger short covering, lifting USD/JPY toward 143.65 and potentially 144.00, which remains a critical resistance point. A sustained move beyond 144.80 may open the door for a larger recovery, although gains above 144.80 are likely to meet selling pressure near the 145.00 psychological barrier.
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