The Japanese Yen (JPY) remains under pressure through Thursday’s early European session, allowing the USD/JPY pair to maintain a foothold above the 143.00 mark. A modest uptick in the US Dollar (USD) supports the pair, though broader market sentiment and diverging central bank expectations cap further upside.
Despite underlying support from safe-haven flows and speculation of further Bank of Japan (BoJ) tightening, the Yen struggles to capitalize. The BoJ is widely expected to continue raising rates, as inflation stays elevated and real wages decline—down for the fourth straight month in April, despite a 2.3% year-on-year increase in nominal wages.
BoJ-Fed Policy Divergence in Focus
Japan’s sticky inflation—4.1% year-on-year in April, marking the fifth consecutive month above 4%—strengthens the case for further BoJ tightening. This is in sharp contrast with the Federal Reserve, where bets are increasing for rate cuts to begin as early as September.
Wednesday’s US data reinforced the dovish Fed narrative. The ADP employment report showed private sector job growth of just 37,000 in May—the weakest since March 2023. April’s figure was also revised lower. Meanwhile, ISM Services PMI dropped to 49.9, marking the first contraction since June 2024 and deepening recession fears.
Adding pressure, US Treasury yields declined sharply, with both the two-year and 10-year yields hitting their lowest levels since May 9. Although this typically weighs on the USD, there has been limited follow-through selling, allowing USD/JPY to stabilize above the 143.00 handle.
Geopolitical Uncertainty and Trade Risks Offer JPY Support
While the JPY is fundamentally supported by risk aversion, particularly with escalating trade and geopolitical tensions, it has failed to attract strong bids. Traders are cautiously watching for developments around a potential call between US President Donald Trump and Chinese President Xi Jinping amid renewed trade friction.
Trump has acknowledged difficulty in negotiating with Xi, and his administration’s decision to double tariffs on steel and aluminum imports—now in effect—has revived concerns of a trade war, which traditionally benefits safe-haven currencies like the Yen. Rising geopolitical risks, including instability in Ukraine and the Middle East, also contribute to a risk-off tone.
Technical Analysis: Upside Capped Below 144.00
Technically, USD/JPY is facing resistance near the 143.70 level. A move beyond this area could test the 144.00 region, followed by the 144.25–144.30 zone, which corresponds to the 100-period Simple Moving Average (SMA) on the four-hour chart. However, with momentum indicators on both hourly and daily timeframes in negative territory, a sustained move higher may be challenging.
On the downside, immediate support lies at 142.40–142.35. A break below this level could lead to a decline toward 142.10, and further to 141.60, with the potential to test sub-141.00 territory if selling pressure intensifies.
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