The Japanese Yen (JPY) continued its decline against the US dollar for a second consecutive day on Wednesday, retreating from its highest level since October. Concerns over potential new tariffs from former US President Donald Trump and a slight improvement in global risk sentiment contributed to the yen’s weakness. However, expectations of further monetary tightening by the Bank of Japan (BoJ) are preventing significant depreciation.
Fresh data revealed that Japan’s annual wholesale inflation, as measured by the Producer Price Index (PPI), rose 4.0% in February, signaling persistent inflationary pressure. Additionally, hopes for continued strong wage hikes are reinforcing market speculation that the BoJ will proceed with further interest rate increases. This, coupled with the recent narrowing of interest rate differentials between Japan and other economies, is providing some support to the lower-yielding yen.
Meanwhile, ongoing concerns about the economic impact of Trump’s trade policies and a potential global trade war continue to offer safe-haven demand for the yen. The US dollar, on the other hand, remains subdued near multi-month lows due to expectations that the Federal Reserve will be forced to cut rates multiple times this year amid fears of a tariff-induced economic slowdown.
Trade and Economic Developments Weigh on USD/JPY
On Tuesday, Trump threatened to impose a 50% tariff on steel and aluminum imports from Canada, though he later softened his stance after Ontario paused electricity surcharges for US customers. Japan’s Trade Minister Yoji Muto confirmed that Japan has yet to receive assurances of exemption from US steel tariffs, which take effect on Wednesday.
In US political developments, the House of Representatives narrowly passed a Republican-backed spending bill aimed at preventing a government shutdown. The legislation, which extends funding through September, now moves to the Senate, where it requires bipartisan support to advance.
Market and Technical Outlook
The latest BoJ data showed that Japan’s PPI eased slightly to 4.0% year-on-year in February from 4.2% in the previous month. However, with consumer inflation exceeding the BoJ’s target for nearly three years, expectations remain firm for continued policy tightening. The yield on Japan’s benchmark 10-year government bond remains near its highest level since October 2008, contrasting with the US 10-year Treasury yield, which hovers near a multi-month low amid recession fears and rate-cut bets.
Market participants are now pricing in three Fed rate cuts of 25 basis points each by year-end, with expectations reinforced by a weaker-than-expected US Nonfarm Payrolls report, which hinted at a cooling labor market. This has kept the US dollar under pressure and limited the upside potential for the USD/JPY pair.
Traders remain cautious ahead of the US Consumer Price Index (CPI) report, which is expected to provide further clarity on the Fed’s rate trajectory. The outcome will likely dictate the next major directional move for the USD/JPY pair.
Technical Analysis
From a technical standpoint, daily chart indicators remain in negative territory but are not yet signaling oversold conditions. This suggests that the USD/JPY pair’s downward trend is likely to persist, with resistance expected around the 148.60-148.70 zone. A sustained move beyond the 149.00 mark could trigger a short-covering rally, pushing the pair toward the 149.70-149.75 resistance level before testing the psychological 150.00 mark.
On the downside, immediate support is seen near the 147.25 level, followed by the 147.00 threshold and the 146.55-146.50 region, which marks a multi-month low. A break below this area could accelerate losses toward the 146.00 mark, with further downside potential extending to the 145.00 psychological level.
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