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The Japanese Yen (JPY) maintains a negative trend as speculation regarding a tariff-driven economic slowdown suggests the Bank of Japan (BoJ) may opt for steady policies. Positive performances in Asian equity markets and a modest rise in the US Dollar (USD) further pressurise the JPY.
The expectation that the BoJ will continue raising interest rates amid rising inflation mitigates further JPY declines. Conversely, anticipated rate cuts from the Federal Reserve (Fed) limit aggressive USD buying, with the USD/JPY pair struggling to surpass the psychological 150.00 level.
Asian Market Reactions To Trade Concerns
Asian market behaviours follow gains from Wall Street, with fears of broad tariffs impacting Japan’s industries. Moreover, recent inflation figures keep the possibility of BoJ rate hikes alive, protecting the JPY from larger losses.
Recent macroeconomic data indicates rising prices and a slowing business environment, causing concerns over stagflation. The ISM Manufacturing Purchasing Managers Index (PMI) dropped to 49, and February’s job openings decreased to 7.56 million.
Market expectations suggest the Fed could lower borrowing costs by 80 basis points by year-end, which does not significantly attract buyers for the USD. Diverging expectations between the BoJ and Fed may reduce the rate differential, further stabilising the JPY.
Traders await upcoming US economic data, including the ADP employment report and Factory Orders, for direction. Technically, the USD/JPY pair has been resilient below the 100-period Simple Moving Average but is advised to wait for substantial buying before pursuing gains.
Usd Jpy Technical Outlook And Risks
Resistance exists around the 150.25 area, with potential further increases if it breaks above 150.75-150.80. Conversely, supports are noted around 149.30-149.25, and a break below these levels could trigger a return to a downtrend.
Tariffs are customs duties on imports aimed at supporting local industries, differing from taxes in purpose and application. While some economists endorse tariffs to protect domestic markets, others warn of long-term negative consequences.
During the 2024 presidential campaign, Donald Trump intends to leverage tariffs to bolster the US economy, particularly focusing on Mexico, China, and Canada. In this context, tariffs would serve as a means to generate revenue for tax reductions on personal income.
From what we are seeing, the overall mood surrounding the yen continues to be weighed down by a mix of external forces and domestic hesitation. Despite occasional resilience, the pressure persists as a cautious central bank and broader market sentiment keep the currency subdued. Investors are increasingly viewing the Japanese unit through the lens of US and Asian economic cues, with doubts over the sustainability of positive equity flows across Asia adding another layer to the equation.
Trading desks are likely to be paying closer attention to the pricing of interest rate differentials. The underlying suggestion that policymakers in Tokyo may raise borrowing costs – although slowly – has created a floor beneath yen weakness. It’s far from a full U-turn in strategy, but even subtle signals of tightening could shift how pricing models view the low-yielding unit in the medium term.
Conversely, in the US, the probability of falling rates has grown, with money markets forecasting three or more policy cuts this year. We’ve noticed these projections limiting fresh inflows into the dollar, especially from funds seeking rate arbitrage. This has left the USD/JPY pair caught in a restrained range, unable to push convincingly past 150.00 without fresh momentum. That level, while technically notable, now stands as more of a lid than a target.
One contributing factor is growing unease over stagflation risks. Manufacturing is pulling back—evidenced by the PMI drop—and hiring is no longer as firm as it was. The decline in job openings implies companies are taking a harder look at their expenses, and that could translate into broader caution across consumer and corporate sentiment. From a volatility standpoint, this combination of rising prices and weakening output tends to limit aggressive forward positioning.
Price action in the coming sessions is expected to rely heavily on top-tier US data. Wednesday’s ADP figure will likely provide insight into the private sector’s willingness to expand the payroll. Factory orders, usually a lagging indicator, may still underline whether capital spending is beginning to contract. If confirmed, that reinforces the current narrative pushing traders to avoid long dollar risks into the summer.
From a technical perspective, the chart hints at consolidation rather than conviction. There’s been a reluctance to move decisively in either direction, with price action hovering below the 100-period average on intraday frames. Until buyers show genuine strength, push-throughs above 150.25 are at risk of fading quickly. If sellers take over and breach the 149.25 area, that could open the door to renewed selling during low-liquidity sessions.
In the broader picture, investors are starting to reassess the fallout from potential policy shifts tied to trade. With tariffs due to feature in the upcoming election cycle, some are recalibrating expectations for cross-border cost structures. These import duties, layered on top of already strained supply chains, could alter inflation expectations – not just in the US but globally. The idea, floated again by policymakers such as Trump, is to use these levies to back tax relief schemes domestically. While the move may stimulate select sectors, the effect on import prices and interconnected global demand chains should not be overlooked.
Where does that leave rates markets? With one major bank treading cautiously and the other nearing a pivot lower, the narrative may continue to move in favour of relatively stable yen performance. There’s less of an automatic assumption that the dollar will draw in fresh positioning as it might have last year. Evidence is building that short-term yield support for the greenback is loosening – and that matters in how we frame risk going forward.
