The Japanese Yen (JPY) surged to a fresh multi-month high against the US Dollar (USD) during Tuesday’s Asian session, despite Japan’s downwardly revised fourth-quarter GDP data, which complicates the Bank of Japan’s (BoJ) outlook for further rate hikes. The narrowing yield gap between Japan and other major economies remains a significant driver supporting the JPY, further reinforced by prevailing risk-off sentiment.
Yen Bulls Unshaken by Tariff Concerns, Dollar Pressured by Fed Expectations
Despite concerns that former US President Donald Trump may impose new tariffs on Japan, JPY bulls remain resilient. Meanwhile, the USD continues to struggle near multi-month lows, as expectations grow that a tariff-induced slowdown in US economic growth could prompt the Federal Reserve (Fed) to implement multiple rate cuts this year. This reinforces the downward trajectory for the USD/JPY pair, increasing the likelihood of further losses.
Japan’s GDP Data Strengthens Market Expectations of Steady BoJ Policy
Revised figures from Japan’s Cabinet Office released Tuesday indicate that the country’s economy expanded at an annualized rate of 2.2% in Q4, lower than the initial 2.8% estimate. On a quarterly basis, GDP grew by 0.6%, slightly below the preliminary 0.7% figure.
This data supports market expectations that the BoJ will maintain its policy rate at its upcoming meeting on March 18-19. However, traders are still pricing in a potential rate hike as early as May, amid concerns over persistent inflation and expectations that last year’s strong wage growth will continue in 2024.
BoJ Deputy Governor Shinichi Uchida recently signaled that the central bank would raise rates in alignment with market and economic conditions, a stance that has driven Japanese government bond yields to their highest levels since October 2008. Meanwhile, Economy Minister Ryosei Akazawa emphasized the importance of exchange rates reflecting economic fundamentals, while Finance Minister Shunichi Kato noted that rising long-term interest rates could have broad economic implications.
US Trade Policies Add to Uncertainty, Fed Rate Cuts Loom
Japan’s Trade Minister Yoji Muto stated that discussions on tariffs with the US are ongoing, without confirming Japan’s exemption from steel import duties. With Trump’s 25% tariffs on global steel and aluminum imports set to take effect Wednesday and additional levies planned for April 2, trade tensions remain a key risk factor.
Simultaneously, the USD continues to languish near its lowest levels since November, as market sentiment solidifies around expectations that the Fed will commence rate cuts sooner rather than later, driven by signs of US labor market weakness. The uncertainty surrounding Trump’s trade policies and their potential impact on US economic growth further strengthens the case for monetary easing.
Traders now await the Job Openings and Labor Turnover Survey (JOLTS) data due later in the North American session, with greater focus on Wednesday’s US consumer inflation report, which will play a crucial role in shaping USD price action and the near-term outlook for the USD/JPY pair.
Technical Outlook: USD/JPY Faces Resistance, Bears Await Confirmation
From a technical perspective, the daily Relative Strength Index (RSI) remains on the verge of entering oversold territory, signaling the need for consolidation before further downside movement. A short-term rebound may precede an extension of the two-month downtrend.
Any recovery attempt beyond the 147.25-147.30 resistance zone is expected to face selling pressure, with stronger resistance at 148.60-148.70, a key pivot level. Conversely, immediate support is seen at the 146.55-146.50 range, with a breakdown potentially accelerating losses toward 146.00 and further to 145.25 and 145.00 psychological support.
As market sentiment continues to shift, the interplay between Fed rate expectations, BoJ policy signals, and global trade developments will remain critical drivers of the USD/JPY pair’s direction.
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