The Japanese Yen (JPY) rebounded modestly from a more than one-week low against the US Dollar (USD) early Wednesday, although the recovery showed little momentum. Market sentiment is increasingly aligning with expectations that the Bank of Japan (BoJ) may continue raising interest rates to counter widening inflationary pressures. Simultaneously, lingering uncertainties surrounding former US President Donald Trump’s trade policy and persistent geopolitical tensions are helping cushion the JPY’s downside.
However, a broadly positive risk tone in financial markets is discouraging investors from aggressively increasing exposure to the safe-haven currency. The USD, bolstered by stronger-than-expected macroeconomic data released on Tuesday, continues to lend support to the USD/JPY pair. Nonetheless, diverging monetary policy expectations between the Federal Reserve and the BoJ—marked by anticipated Fed rate cuts in 2025 and BoJ’s tightening stance—are lending modest support to the Yen.
Policy Shifts and Market Signals in Japan
Japan’s Finance Minister Shunichi Kato expressed concern Wednesday over the recent surge in government bond yields, pledging closer monitoring of bond market dynamics. This follows a Reuters report that the Ministry of Finance is weighing adjustments to its current fiscal bond issuance strategy, potentially reducing allocations to ultra-long bonds.
BoJ Governor Kazuo Ueda added that economic outlooks remain uncertain amid ongoing tariff discussions with the US. He emphasized the heightened influence of short- and medium-term rate fluctuations on economic performance, indicating continued close surveillance of financial conditions. Despite these cautionary remarks, growing optimism over trade relations is acting as a headwind for the Yen.
Global Trade and Geopolitics Weigh In
In a move that improved global market sentiment, former President Trump announced a delay in implementing 50% tariffs on European Union imports until July 9. While this undercuts the demand for safe-haven assets like the JPY, ongoing ambiguity surrounding Trump’s broader trade agenda continues to inject volatility.
BoJ officials, meanwhile, have maintained a hawkish tone, suggesting further rate hikes are on the table if inflation and growth continue to meet expectations. Recent data indicating broad-based inflation supports this outlook. Nonetheless, policymakers are expected to assess the implications of trade developments before determining the next steps in monetary policy.
By contrast, the Fed is expected to lower rates at least twice in 2025 amid signs of cooling inflation. Compounding the pressure on the USD are concerns over the growing US fiscal deficit, fueled by Trump’s proposed “Big, Beautiful Bill.”
Geopolitical Risks Persist
Russia has rejected ceasefire negotiations, continuing its offensive in northeastern Ukraine following one of the deadliest aerial attacks since the war began in February 2022. Meanwhile, Hamas has reportedly accepted a US ceasefire proposal for Gaza, though American officials criticized the current terms as “unacceptable” and “disappointing.” These developments underscore lingering geopolitical instability, keeping investors on edge.
Market Focus Turns to Fed Guidance and Economic Data
Looking ahead, investors are awaiting the release of the Federal Open Market Committee (FOMC) meeting minutes for clues about the Fed’s rate trajectory. This will be followed by key US economic indicators, including preliminary Q1 GDP on Thursday and the Personal Consumption Expenditure (PCE) Price Index on Friday, alongside Tokyo’s Consumer Price Index (CPI).
Technical Outlook: USD/JPY Faces Resistance Near 145.00
Despite a breakout above a significant technical zone at 143.65–143.75—comprising the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement level—the USD/JPY rally has stalled below the 38.2% retracement level. While short-term oscillators suggest room for further gains, the lack of confirmation on daily charts signals caution.
Immediate resistance lies near the psychological 145.00 mark, followed by the 50% retracement level at 145.40. A clear break above these could open the door for more substantial upside.
On the downside, support is seen around 144.00, with stronger demand expected at the previous resistance zone of 143.65–143.75. A decisive move below this range would likely confirm that the recent rebound has exhausted, potentially dragging the pair down to 143.00 or even toward the monthly low near 142.10.
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