The Japanese Yen (JPY) extends its rally against the US Dollar (USD) for a second straight session on Monday, reaching a one-week high during Asian trading. Mounting concerns over US President Donald Trump’s proposed reciprocal tariffs and broader geopolitical risks continue to weigh on market sentiment, driving investors toward the safe-haven JPY.
Further bolstering the yen, strong consumer inflation data from Tokyo has reinforced expectations that the Bank of Japan (BoJ) may raise interest rates in May. This stands in stark contrast to growing market anticipation that the Federal Reserve (Fed) will soon resume its rate-cutting cycle, particularly as US tariffs threaten economic growth.
Trade Tensions and Geopolitical Risks Fuel Yen Demand
Trump’s decision to impose a 25% tariff on non-American cars, coupled with reports that he may expand tariffs to a wider range of countries starting April 2, has unsettled investors. Additionally, the former president threatened to introduce secondary tariffs of up to 50% on Russian oil buyers and issued warnings to Ukrainian President Volodymyr Zelenskiy over a rare earth minerals deal, escalating geopolitical tensions.
BoJ Rate Hike Prospects vs. Fed’s Uncertainty
Friday’s inflation data from Tokyo showed that price growth remained above the BoJ’s 2% target, strengthening the case for additional rate hikes. The BoJ’s Summary of Opinions from its March meeting indicated a consensus for further tightening if economic conditions align with forecasts.
Meanwhile, US economic data released on Friday painted a mixed picture. The Commerce Department’s Personal Consumption Expenditures (PCE) Price Index rose 0.3% in February and 2.5% year-over-year, in line with expectations. However, the core PCE gauge, excluding food and energy, saw a 0.4% monthly increase—the highest since January 2024—pushing the annual rate to 2.8%. Consumer spending also rebounded by 0.4%, while personal income surged by 0.8%. A University of Michigan survey revealed that 12-month inflation expectations climbed to their highest level in nearly two and a half years, fueling stagflation fears and further pressuring the USD.
Market Reaction and Technical Outlook for USD/JPY
Despite Japan’s Finance Minister Katsunobu Kato stating that excessive forex moves are undesirable, the JPY’s bullish momentum remains intact, pushing the USD/JPY pair down toward the critical 149.00 support level.
From a technical perspective, 149.00 represents the 100-day Simple Moving Average (SMA) on the 4-hour chart and aligns with the 50% Fibonacci retracement level of the recent uptrend. A decisive break below this level could trigger an accelerated decline toward the 148.35 region, followed by 148.00 and the next key support at 147.70.
Conversely, if the pair stages a recovery, initial resistance lies at the 149.45 level (38.2% Fibonacci retracement). A move beyond this could trigger short-covering, allowing USD/JPY to retest the 150.00 psychological mark. A sustained breakout above 150.65 would signal the end of the corrective pullback and open the door for a push toward 151.00, with the next key hurdle at 151.30.
With traders now awaiting US macroeconomic data, including the closely watched Nonfarm Payrolls (NFP) report, further volatility is expected in the USD/JPY pair in the coming days.
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