USD/JPY fell sharply to near 149.00 as the Japanese Yen strengthened, driven by concerns over potential tariffs from the Trump administration. The market anticipates that these tariffs may negatively affect the US economy, prompting a shift towards the Yen, which is considered a safe haven.
The Japanese Yen showed notable gains against major currencies, particularly the British Pound. Expectations are building for the Bank of Japan to increase interest rates during the May policy meeting, with analysts suggesting a 25 basis-point hike.
us data reveals weakness
Recent data revealed a decline in the US ISM Manufacturing PMI to 49.0, below expectations, indicating contraction in the manufacturing sector. Job openings also fell slightly in February, adding pressure to the US Dollar.
This drop in USD/JPY to around 149.00 reflects a wider trend of caution across financial markets. Traders have moved away from the US Dollar in response to concern over potential trade actions that may dampen future economic performance in the United States. The shift into the Yen is consistent with its usual role when risk sentiment declines.
What we’re seeing is a blend of policy and macroeconomic signals that give support to the Japanese currency. A firmer Yen across the board, especially against the Pound, makes sense when measured against growing chatter around a rate increase from the Bank of Japan. Speculation is gaining about a 25 basis-point move as early as the May meeting. If that comes to pass, it would mark another milestone in the change in tone that began months ago with talk of yield curve revisions and efforts to normalise policy. Currency markets, as always, tend to move ahead of the announcements themselves.
On the other side of the Pacific, US economic figures did little to support the Dollar. The ISM manufacturing survey coming in at 49.0 reveals a contraction—the third time in four months, and this reading underlines softness in the industrial sector. Meanwhile, a further slight drop in available jobs in February feeds into the picture of a labour market past its tightest point. Taken together, this lessens the likelihood that the Federal Reserve will opt for additional interest rate hikes in the near term.
interest rate divergence supports yen
We’re now in a situation where interest rate expectations are diverging. It’s this gap—between the possibility of policy tightening in Japan and a more restrained stance in the US—that explains the fast-paced move in JPY-based pairs. Pair that with the Trump-led trade concerns, and it becomes harder to build a bullish case for the Dollar, at least in the near term.
For those trading derivatives tied to USD/JPY, the pricing in of Bank of Japan expectations has clearly begun, and it’s already influencing intraday volatility. The move below 150 is noteworthy, not just because of the round number, but due to how rapidly the support gave way. We’ve also noticed increased activity in options markets, suggesting that more traders are looking to hedge against further Yen strength.
From our observations, calendar considerations now matter more—key events such as policy meetings and data releases stand to trigger fresh directional moves. Until the May meeting, any comments from Bank of Japan members could reinforce these positions. At the same time, short-term sentiment will continue to track data out of the US. If economic reports don’t show improvement, particularly around manufacturing and labour, the Dollar may struggle to claw back those recent losses.
For now, it’s worth keeping an eye on the bond spread between US and Japanese government debt, which has narrowed slightly—yet another piece reinforcing Yen momentum. In our view, absent an unexpected shift from US policymakers, the path of least resistance could remain biased toward further USD/JPY weakness.
