The Japanese Yen (JPY) maintained modest intraday gains on Monday, keeping the USD/JPY pair under pressure below the mid-150.00s during the Asian session. Growing expectations that the Bank of Japan (BoJ) will continue raising interest rates have supported Japanese government bond yields (JGB), providing a tailwind for the Yen.
BoJ Policy and Trump’s Tariff Plans Weigh on Market Sentiment
BoJ Governor Kazuo Ueda recently cautioned that uncertainties surrounding former U.S. President Donald Trump’s tariff policies and their global economic impact could influence monetary policy decisions. While this has tempered aggressive bets on the Yen, the upside potential for USD/JPY remains limited, as expectations of Federal Reserve (Fed) rate cuts continue to weigh on the U.S. Dollar.
Economic indicators in Japan reinforce the case for further BoJ tightening. Japan’s latest data pointed to solid economic growth and persistent inflation, bolstering expectations of future rate hikes. Japanese media reports suggested that the BoJ may face external pressure from the U.S. if the White House attributes JPY weakness to BoJ policies. Meanwhile, the final reading of Japan’s Manufacturing Purchasing Managers’ Index (PMI) for February came in at 49.0, slightly improving from the flash estimate of 48.9, marking the slowest contraction in three months.
U.S. Data and Fed Rate Cut Speculation Add to Dollar Weakness
Trump confirmed plans to impose new tariffs on Canada and Mexico starting Tuesday and announced an increase in the universal tariff on Chinese imports from 10% to 20%. Despite a strong U.S. Dollar rally last Friday following key inflation data, the currency struggled to hold gains, further pressuring the USD/JPY pair.
The U.S. Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index dipped to 2.5% in January from 2.6% previously, while the core PCE Price Index, which excludes food and energy, eased to 2.6% from 2.9% in December. Investors now anticipate a potential Fed rate cut as early as June, with another cut likely in September.
Market participants are now looking ahead to the U.S. ISM Manufacturing PMI data later on Monday, though the primary focus remains on the upcoming Nonfarm Payrolls report on Friday.
Technical Outlook: USD/JPY Vulnerable to Further Decline
From a technical standpoint, USD/JPY faces resistance at the 151.00 level, a key barrier following last week’s recovery. Daily chart indicators, while rebounding, remain in negative territory, suggesting a bearish bias. A move below the 150.00 psychological level could trigger further selling, pushing the pair toward the 149.00 mark and potentially down to the 148.60-148.55 region, a multi-month low.
Conversely, a sustained rally above 151.00 could fuel short-covering, driving the pair towards 151.70-151.75 resistance and potentially the 152.00 level. A breakout beyond the 200-day Simple Moving Average (SMA) at 152.40 would signal a potential bottoming out, paving the way for further gains.
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