The Japanese Yen (JPY) has gained strength against the US Dollar (USD), filling its weekly bullish gap amid growing concerns that harsher reciprocal tariffs from the United States could harm Japan’s economy. These fears may force the Bank of Japan (BoJ) to maintain its current interest rates for the time being. However, signs of broadening inflation in Japan leave the possibility open for future BoJ rate hikes in 2025. In addition, the prevailing risk-off sentiment in global markets has further bolstered the Yen, helping it resist an intraday retracement.
Global investors remain wary of the economic fallout from US President Donald Trump’s reciprocal tariffs, which have heightened fears about slowing global growth. Geopolitical tensions, coupled with an extended sell-off in global equity markets, have contributed to the anti-risk flow. Meanwhile, expectations for more aggressive policy easing by the Federal Reserve (Fed) continue to pressure US Treasury bond yields lower, capping the USD’s attempts to recover, especially against the JPY.
Global Trade War Concerns Weigh on Equity Markets, Boost Yen
Asian stock markets and US equity futures saw sharp declines at the start of the week, driven by fears that the trade war between the US and its major trading partners could escalate, possibly triggering a recession. Last Wednesday, President Trump imposed a 10% baseline tariff on all imports, along with higher duties on some of the US’s largest trade partners. In retaliation, the European Union is set to join China and Canada in imposing reciprocal tariffs.
This global trade uncertainty has prompted investors to scale back expectations for early interest rate hikes by the BoJ. The Bank of Japan, concerned about the potential impact of US tariffs on Japan’s economy, faces pressure to delay any tightening measures. Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, stated on Monday that US tariffs are expected to significantly affect Japan-US economic relations, which has further dampened the Yen’s modest gains during the Asian session.
Prime Minister Shigeru Ishiba also voiced Japan’s position on tariffs, stressing that the country would continue pushing the US to reduce tariffs on Japanese goods. However, he acknowledged that progress would be slow, noting that a call with President Trump is planned for this week. Despite these efforts, the Yen bulls have struggled to gain significant momentum.
US Economic Data and Fed Expectations Limit Dollar Recovery
On the US side, the USD has held onto some gains from Friday, buoyed by a stronger-than-expected US Nonfarm Payrolls (NFP) report and hawkish comments from Federal Reserve Chair Jerome Powell. The Bureau of Labor Statistics reported that the US economy added 228,000 jobs in March, far surpassing the 135,000 market forecast.
However, Powell acknowledged the potential economic and inflationary impact of Trump’s tariffs, though he indicated that any policy changes would be put on hold for now. Despite inflation nearing the Fed’s target, Powell emphasized that the central bank‘s role is to prevent temporary price hikes from becoming persistent. The market continues to speculate that the Fed will resume rate cuts, with many expecting a reduction in borrowing costs at least four times by the end of the year, in an effort to support the US economy.
This dovish outlook, combined with the broader risk-off sentiment, has driven the 10-year US Treasury yield below the 4.0% threshold, limiting the USD’s upside potential.
Technical Outlook: USD/JPY Faces Bearish Bias Below 147.00
From a technical standpoint, last week’s breakdown below the 61.8% Fibonacci retracement level of the September-March positive move triggered renewed bearish sentiment for the USD/JPY pair. Oscillators on the daily chart remain deeply negative, indicating that the path of least resistance for the pair is still to the downside.
A recovery beyond the 147.00 mark (the 61.8% Fibonacci level) could be seen as a selling opportunity, with resistance likely near the 147.70 region. A break above 148.00 might spark a short-covering rally. On the downside, immediate support is seen at the 146.00 mark, followed by the 145.45 region and the 145.00 psychological level. If the pair breaches the 144.55 region, it could accelerate further downward towards the 144.00 mark.
In conclusion, while the Japanese Yen continues to benefit from a risk-off environment and escalating trade tensions, ongoing concerns about the global economy and Japan’s economic relations with the US may keep the Yen’s gains in check for the time being. The USD/JPY pair appears vulnerable, with bearish technical indicators supporting a negative outlook in the short term.
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