The Japanese Yen (JPY) continues to show strength against the US Dollar (USD), keeping the USD/JPY pair near its lowest point since early October. This trend is largely driven by ongoing speculation that the Bank of Japan (BoJ) will raise interest rates, exerting upward pressure on Japanese government bond (JGB) yields. As a result, the narrowing of the interest rate differential between Japan and other nations continues to support the JPY.
The Yen’s gains are further bolstered by concerns surrounding US President Donald Trump’s trade policies, which are impacting global economic growth. Investor sentiment remains cautious, reflected in weaker equity markets, thereby supporting the safe-haven appeal of the Yen. However, USD bears are hesitant to place new bets, awaiting the upcoming US Nonfarm Payrolls (NFP) report, which limits significant losses for the USD/JPY pair.
Bank of Japan Deputy Governor Shinichi Uchida’s recent statement confirmed that the central bank is likely to raise rates in line with expectations from financial markets and economists. Additionally, a global bond sell-off has driven Japan’s benchmark 10-year government bond yield to its highest level since June 2009, providing further support to the Yen.
Investor sentiment remains cautious as they await more clarity on Trump’s trade policies, particularly after his recent reversal on tariffs imposed on Mexico and Canada. Trump announced Thursday that goods from both countries complying with the US-Mexico-Canada Agreement would be exempt from the steep 25% tariffs for a month. Concerns over the long-term impact of Trump’s tariffs on US economic growth continue to stir speculation that the Federal Reserve may resume cutting interest rates as soon as May.
Federal Reserve officials have expressed concerns over the economy’s stability, especially in the consumer sector and inflation outlook. Philadelphia Fed President Patrick Harker warned of potential stress in the US economy, and Atlanta Fed President Raphael Bostic acknowledged the uncertainty surrounding economic conditions. Despite these concerns, the US job market showed signs of strength, with Initial Jobless Claims falling more than expected to 221K for the week ending March 1.
The odds of a March rate cut from the Federal Reserve remain slim, with the market divided over a potential cut in May, but anticipating a reduction in rates by June. The upcoming US NFP report is expected to show 160K new jobs added in February, with the unemployment rate remaining steady at 4%.
From a technical standpoint, the recent breakdown of the USD/JPY pair below the 148.70-148.65 support level has triggered bearish sentiment. However, the Relative Strength Index (RSI) is nearing oversold territory, suggesting caution. Investors may await near-term consolidation or a modest bounce before positioning for further downside movement in the USD/JPY pair.
The 148.65-148.70 region could act as resistance if the pair attempts to recover, with further resistance seen at the 149.00 and 150.00 levels. On the downside, the recent multi-month low at 147.30 now serves as immediate support, followed by the 147.00 level. Continued selling pressure could push the pair toward 146.00 and 145.50, with the 145.00 level as a key psychological target.
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