The Japanese Yen (JPY) has seen aggressive buying during the Asian session on Thursday, driven by a global flight to safety after U.S. President Donald Trump’s announcement of sweeping reciprocal tariffs. The tariffs, aimed at various trading partners including China, have sparked widespread concerns about the potential reshaping of the global trading system and the negative impact on the world economy. As a result, global markets have reacted sharply, with stock markets plunging and the safe-haven JPY soaring to a three-week high against the U.S. Dollar (USD).
Global Risk Sentiment and USD Weakness
The announcement of tariffs—particularly the baseline 10% duty on all U.S. imports—has shaken investor confidence, triggering a sell-off in global equities and sending yields on government bonds lower. As investors sought safer assets, the JPY benefited from the risk-off sentiment. The yield on the benchmark 10-year U.S. Treasury bond fell sharply, hitting a fresh year-to-date low, further undermining the USD.
Meanwhile, there is growing market belief that the Federal Reserve will move to lower interest rates as the U.S. economy faces a slowdown, exacerbated by these tariffs. Traders are now pricing in a series of rate cuts, starting in June, which would make the USD less attractive relative to other currencies like the JPY.
Bank of Japan‘s Potential Response
While the U.S. looks set to ease its monetary policy, Japan may be on the cusp of tightening, as inflationary pressures in the country continue to build. This divergence in central bank policies supports the JPY. Despite concerns that Trump’s tariffs could hurt Japan’s economy, strong inflation data, including consumer inflation from Tokyo, has led investors to scale back expectations of any aggressive BoJ easing. This divergence in expectations could help sustain the Yen’s strength against the USD.
USD/JPY Technical Outlook
From a technical perspective, the USD/JPY pair has broken below the 100-period Simple Moving Average (SMA) on the 4-hour chart and breached a multi-week-old ascending channel, signaling a bearish short-term outlook. The next support levels are seen near the 147.00 mark, followed by the 146.55-146.50 region, which represents a multi-month low touched in March. If this bearish momentum continues, a further decline to these levels seems likely.
However, any attempt at a recovery in the USD could encounter resistance around the 148.00 level. A sustained move higher might trigger a short-covering rally toward the 148.65-148.70 region. Further movement above this could open the door for a potential return to the 149.00-149.35 region, where additional resistance is expected, especially near the 100-period SMA. If the pair breaks through this level, the bearish outlook would be negated, and further gains for the USD/JPY pair could materialize.
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