The Japanese Yen (JPY) faces selling pressure during Friday’s Asian session, reversing the previous day’s gains against the U.S. Dollar (USD) as global risk sentiment improves. Positive signals from the White House and Canadian officials, coupled with reports that enough Democratic votes exist to avert a U.S. government shutdown, have bolstered investor confidence. This modest recovery in U.S. equity futures has weakened the JPY’s appeal as a safe-haven asset.
However, the JPY’s downside remains limited, as growing expectations for another Bank of Japan (BoJ) rate hike continue to support the currency. The narrowing interest rate differential between Japan and other major economies, driven by hawkish BoJ expectations, helps cushion losses for the lower-yielding Yen. Additionally, the USD remains under pressure as market participants anticipate multiple Federal Reserve (Fed) rate cuts this year, potentially capping gains for the USD/JPY pair.
Market Sentiment Shifts as Trade and Political Developments Ease Uncertainty
Investor sentiment improved after Ontario Premier Doug Ford described his meeting with U.S. Commerce Secretary Howard Lutnick as “positive and productive,” helping ease concerns over trade tensions. Canadian Industry Minister Francois-Philippe Champagne and Finance Minister Dominic LeBlanc also characterized discussions as constructive, signaling continued diplomatic efforts to resolve trade disputes.
In U.S. politics, Senate Minority Leader Chuck Schumer confirmed that Democrats will support a Republican-backed spending bill to keep the government funded through September, reducing fears of a shutdown. Additionally, Russian President Vladimir Putin offered conditional support for a U.S.-Ukraine-backed 30-day ceasefire proposal, further boosting risk appetite in global markets.
BoJ Policy Outlook Remains Key as Wage Negotiations and Inflation Signal Strength
Japanese Prime Minister Shigeru Ishiba recently emphasized the importance of the ongoing spring wage negotiations, urging trade unions and businesses to increase worker pay. On Thursday, a major Japanese labor union group reported that its member unions had secured wage hikes averaging just over 5%, slightly below last year’s figure. The preliminary results of Japan’s annual “Shunto” labor negotiations are set for release Friday, with expectations that wage growth will remain strong.
Persistent inflationary pressures in Japan provide the BoJ with additional justification to tighten monetary policy further. The yield on Japan’s benchmark 10-year government bond remains near its highest level since October 2008, reinforcing expectations that the central bank may continue adjusting rates in the coming months.
USD Struggles as Inflation Data Strengthens Fed Rate Cut Bets
The U.S. Dollar remains under pressure as speculation grows that the Fed will resume its rate-cutting cycle. Markets are currently pricing in three 25-basis-point rate cuts in June, July, and October. This outlook was reinforced by Thursday’s Producer Price Index (PPI) data, which showed no monthly change in February, with the annual rate slowing to 3.2% from 3.7% in January.
Additionally, the softer-than-expected Consumer Price Index (CPI) report released earlier this week signaled easing inflationary pressures, supporting expectations for looser monetary policy. Traders now await the preliminary release of the University of Michigan’s Consumer Sentiment and Inflation Expectations Index for further insights into short-term market trends.
Technical Outlook: USD/JPY Faces Resistance Amid Mixed Signals
From a technical perspective, the USD/JPY pair may struggle to sustain intraday gains, facing key resistance near the 148.60-148.70 zone, followed by the 149.00 mark and the weekly swing high of 149.20. A sustained break above this level could trigger a short-covering rally, potentially pushing the pair towards the 150.00 psychological level and further into the 150.65-150.70 range. Continued momentum could extend gains toward 151.00 and the monthly peak of 151.30.
On the downside, immediate support is located in the 147.75-147.70 range. A decisive break below this level could expose the pair to further downside toward the 147.00 mark, with additional support at 146.55-146.50—the lowest level since October. Given that oscillators on the daily chart remain in negative territory but are not yet in oversold conditions, continued selling pressure could signal deeper losses ahead.
With global risk sentiment improving but BoJ rate hike expectations still in play, the USD/JPY pair remains in a delicate balance, awaiting further market catalysts.
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