The USD/JPY pair rebounded above the 149.00 mark for the second consecutive session on Monday, buoyed by risk-on sentiment following China’s latest economic stimulus measures. The optimism in Asian equity markets weighed on the safe-haven Japanese Yen (JPY), limiting its appeal.
However, expectations that the Bank of Japan (BoJ) may continue hiking interest rates could deter aggressive JPY selling. Additionally, ongoing concerns over a US economic slowdown—driven by trade tariffs and anticipated Federal Reserve (Fed) rate cuts—could cap further gains in the USD/JPY pair.
China Stimulus Lifts Risk Sentiment, Weighs on JPY
China’s State Council announced new measures over the weekend to stimulate domestic consumption and boost household incomes, while authorities in Shenzhen eased housing loan policies to support the property market. These moves bolstered investor confidence, reducing demand for the Yen as a safe-haven asset.
Meanwhile, Japan’s annual spring labor negotiations concluded with companies offering an average wage increase exceeding 5% for the second consecutive year. Higher wages could drive inflationary pressures, reinforcing the case for further monetary tightening by the BoJ.
Fed Rate Cut Bets Keep USD in Check
Market sentiment surrounding the USD remains bearish amid growing expectations that the Fed will begin cutting interest rates in June. Softer US inflation data, signs of labor market cooling, and a sharp drop in consumer sentiment—evidenced by the University of Michigan’s index hitting a 2.5-year low—have fueled speculation that the Fed may implement at least three rate cuts this year.
Investors now await the release of US Retail Sales and the Empire State Manufacturing Index for further clues on economic conditions. However, the key focus remains on central bank policy decisions, with the BoJ set to announce its stance on Wednesday, followed by the conclusion of the Fed’s two-day meeting.
Geopolitical Risks Add to Market Uncertainty
Geopolitical tensions continue to loom over markets. Houthi militants in Yemen have vowed to target US ships in retaliation for American airstrikes, which reportedly killed over 50 people. US Defense Secretary Lloyd Austin reaffirmed that military operations against the Houthis will persist until shipping attacks cease.
Meanwhile, Israeli airstrikes in northern Gaza over the weekend resulted in multiple casualties, including journalists. The Israeli military claimed the strike targeted Hamas militants preparing attacks. These developments add another layer of uncertainty to global markets.
Technical Outlook: Key Levels to Watch
From a technical standpoint, repeated failures to sustain levels above 149.00 and bearish signals on the daily chart suggest caution for USD/JPY bulls. However, a decisive break above last week’s swing high of 149.20 could trigger a short-covering rally, potentially pushing the pair toward 150.00 and beyond to 151.30.
On the downside, immediate support lies at 148.25, with stronger levels at 147.70 and 147.00. A clear break below 146.50 would signal deeper losses, extending toward the October lows.
With key central bank decisions looming, traders may remain cautious, waiting for policy signals before positioning for the next major move in USD/JPY.
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