The Japanese Yen (JPY) remains under pressure on Tuesday, slipping to a nearly two-week low against the recovering US Dollar (USD) during Asian trading hours. However, the currency trimmed part of its intraday losses as investors balanced optimism over US-China trade talks with hawkish signals from the Bank of Japan (BoJ).
Market sentiment received a boost as top US and Chinese officials began a second day of negotiations in London aimed at de-escalating tensions over technology and rare earth exports. The positive tone from the talks undermined demand for safe-haven assets like the yen. Nevertheless, firming expectations that the BoJ will continue tightening monetary policy helped curb further depreciation in the Japanese currency.
In stark contrast, markets have been increasingly pricing in the likelihood of interest rate cuts from the Federal Reserve later this year. While Friday’s stronger-than-expected US Nonfarm Payrolls (NFP) report temporarily dampened those expectations and lent the USD some support, the broader narrative still points to possible easing, potentially as soon as September.
BoJ’s Ueda Reaffirms Rate Hike Outlook
Speaking on Tuesday, BoJ Governor Kazuo Ueda reiterated the central bank‘s readiness to raise interest rates once it is confident that underlying inflation is sustainably near the 2% target. He added that if the economy faces strong downside risks, the BoJ has limited room to ease policy further given the short-term rate is already at 0.5%.
Revised data on Monday showed Japan’s economy contracted by just 0.2% on an annualized basis in Q1, less than initially estimated. The relatively mild downturn, combined with persistent inflation, reinforced market expectations that the BoJ will proceed with gradual policy normalization, supporting the yen on dips.
Geopolitical and Fiscal Concerns Temper USD Gains
Although the USD/JPY pair has rebounded close to the 145.00 level, gains remain capped by lingering geopolitical risks and fiscal uncertainty in the US. A large-scale Russian airstrike on Ukraine and escalating US domestic fiscal concerns—amplified by political pressure from Donald Trump urging the Fed to cut rates by a full percentage point—continue to cast a shadow over the dollar’s upside potential.
Technical Outlook
From a technical standpoint, the USD/JPY pair has bounced off the 100-period Simple Moving Average (SMA) on the 4-hour chart near sub-144.00 levels. Momentum indicators on the daily chart are gaining traction, favoring further upside in the near term. The pair may face initial resistance at 145.60–145.65, followed by the 146.00 psychological mark and the May 29 swing high at 146.25–146.30.
On the downside, immediate support lies at the 145.00 level, followed by the 144.60–144.55 zone. A break below the 200-period SMA at 144.25 could shift the near-term outlook to bearish, with the next target near sub-144.00 acting as a critical inflection point.
