The Japanese Yen (JPY) remains firm against the US Dollar (USD) in the Asian session on Tuesday but struggles to sustain momentum. Concerns over US President Donald Trump’s imposition of no-exemption tariffs on commodity imports have heightened economic uncertainties, jeopardizing trade relations with the European Union, the United Kingdom, Japan, and other nations. This development poses a challenge to Japan’s economic stability and acts as a headwind for the Yen.
Meanwhile, the US Dollar gains modest support from expectations that Trump’s policies could drive inflation higher and prompt the Federal Reserve (Fed) to delay interest rate cuts. However, the downside for the JPY is cushioned by the Bank of Japan’s (BoJ) commitment to further rate hikes. Market participants now await Fed Chair Jerome Powell’s congressional testimony for fresh signals.
Mixed Signals Leave the Yen in a Tight Spot
Trump’s executive order on Monday imposed a 25% tariff on steel and aluminum imports, fueling fears of a global trade war. This move initially strengthened the safe-haven Yen, though its gains were limited.
On the domestic front, BoJ Governor Kazuo Ueda and Deputy Governor Himino have hinted at another potential interest rate hike, provided economic and price conditions align with central bank forecasts. Adding to the hawkish stance, BoJ board member Naoki Tamura suggested raising rates to 1% in the latter half of the fiscal year starting in April to counter inflationary pressures.
Several BoJ officials have voiced support for additional rate hikes, citing persistently high core inflation, which has exceeded the bank’s 2% target for nearly three years. However, uncertainty looms as Trump’s economic policies may drive US inflation higher, compelling the Fed to maintain a restrictive stance, given the resilience of the US economy and labor market.
The market focus is now on Powell’s two-day congressional testimony, starting Tuesday, which could offer insights into the Fed’s policy outlook. Additionally, Wednesday’s US inflation data will likely influence the USD/JPY pair’s trajectory in the near term.
Technical Outlook: USD/JPY at Risk of Further Decline
From a technical perspective, the USD/JPY pair recently failed to sustain gains above the 152.50 resistance level, a confluence of the 100- and 200-day Simple Moving Averages (SMA). The subsequent decline favors bearish traders, with technical indicators suggesting further downside potential.
Immediate support lies at the 151.30 level, followed by the 151.00–150.90 zone, marking the lowest point since December 10. A decisive break below these levels could accelerate the decline toward the psychological 150.00 mark, with intermediate support near 150.55.
Conversely, a breakout above 152.50 could trigger a short-covering rally, allowing the USD/JPY pair to test the 153.00 level, with further gains capped near 153.75. However, prevailing bearish momentum suggests a cautious outlook for the currency pair.
With global trade tensions and central bank policy divergence at play, the JPY’s outlook remains uncertain, hinging on upcoming economic data and Fed guidance.
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