The Japanese Yen maintains its positive momentum during Thursday’s Asian session, supported by weak US Dollar performance, pushing the USD/JPY pair closer to 148.00, a new weekly low. Strong wage growth in Japan is leading to expectations of continued interest rate hikes by the Bank of Japan, contributing to a narrowing rate differential with other countries.
Concerns surrounding US trade policies and geopolitical tensions are bolstering the Yen’s appeal as a safe-haven asset. Meanwhile, the Federal Reserve’s anticipated policy easing does not aid the USD, which struggles to recover from recent lows.
Bank Of Japan Policy And Interest Rates
The Bank of Japan kept its key policy rate steady, citing high uncertainty in the economy, while the Federal Reserve signalled potential rate cuts later this year amid forecasts of slower growth. Additionally, the Israeli military’s actions in Gaza raise regional tensions, further benefiting the JPY.
From a technical perspective, the inability to hold above 150.00 suggests further downside potential for the USD/JPY pair, with movement below 148.00 likely heading towards support around 147.75 and possibly 147.30. Any recovery faces challenges near the 149.00 mark, with potential upward movement towards 150.60 if the pair surpasses the 150.00 threshold.
In overall performance, the US Dollar has seen strength against the Canadian Dollar but has depreciated against other currencies, including the Euro and British Pound.
A few key threads are emerging here that traders need to keep at the forefront when assessing their positions. The Japanese Yen’s strength isn’t merely a short-term reaction; it leans on growing confidence in tightening monetary policy while external risk factors provide an extra lift. The steady decline in USD/JPY aligns with this broader picture, where the Federal Reserve’s softer stance contrasts with an increasingly hawkish Bank of Japan.
Kuroda’s successor at the central bank has inherited an environment where wage pressures are feeding into expectations of another rate increase. This shift reduces the appeal of carry trades that have long favoured selling the Yen in favour of higher-yielding alternatives. The narrowing gap between US and Japanese rates means that bets on continued Yen weakness are looking more fragile than before. Should US policymakers confirm cuts later in the year, those rate differentials could contract even further.
On the other side of the Pacific, Powell and his colleagues have made it clear that slower growth is taking priority when shaping policy. While inflation remains a factor, the Fed appears far less willing to err on the side of keeping rates higher for longer. The knock-on effect has been a softer US Dollar, particularly when financial markets sense fewer rate hikes ahead compared to other central banks.
Market positioning and technical movement haven’t favoured USD/JPY holding above 150.00, with sellers maintaining control whenever the pair attempts to breach that psychological barrier. Now that support levels near 148.00 are under threat, momentum shifts suggest the next test will come around the 147.75 mark, with an extension towards 147.30 entirely plausible. Should any upside materialise, traders are likely to treat 149.00 as an initial ceiling before considering further moves toward 150.00 and beyond.
Geopolitical Risks And Market Sentiment
Beyond the currency-specific drivers, wider geopolitical developments create another layer of complexity. Uncertainty in the Middle East has reignited interest in safe-haven assets, adding to the Yen’s buoyancy. Combined with concerns surrounding US trade policies, risk sentiment remains fragile, and the flight to safety will be closely watched.
Meanwhile, US Dollar performance has varied across different currency pairs. Strength against the Canadian Dollar shows resilience in select areas, but losses against the Euro and British Pound highlight persisting weakness when compared to major counterparts. The pattern here reflects shifting global rate expectations rather than isolated market moves.
Standing back, the week ahead presents an environment where Yen bulls remain in control until proven otherwise. Rate dynamics work in their favour, the technical picture supports further downside in USD/JPY, and external factors continue aligning with safe-haven demand. If the Federal Reserve remains on course for policy easing while the Bank of Japan signals tightening ahead, the pressure on this pair won’t fade anytime soon.
