The Japanese Yen (JPY) extended its rebound on Tuesday, maintaining a positive bias against a broadly weaker U.S. Dollar (USD) and keeping the USD/JPY pair under pressure below the mid-147.00s during the early European session.
The JPY’s strength was underpinned by growing expectations that the Bank of Japan (BoJ) will continue its policy normalization through 2025, driven by signs of persistent and broadening domestic inflation. This sentiment helped the Yen snap a two-day losing streak and regain safe-haven appeal, particularly amid rising concerns over the global economic fallout from U.S. President Donald Trump’s aggressive trade policy.
Trump recently proposed sweeping reciprocal tariffs of at least 10% on all U.S. imports, with the possibility of levies as high as 50%. The escalating trade rhetoric—especially new threats aimed at China—has rattled global markets, supporting safe-haven flows into the JPY while fueling fears of a global slowdown.
Despite the Yen’s recent gains, some headwinds remain. Analysts warn that Japan’s export-reliant economy could also be negatively affected by widening trade barriers. Additionally, a slight improvement in global risk sentiment may limit further upside for the JPY in the near term.
Conversely, the U.S. Dollar has come under renewed selling pressure, weighed down by mounting bets that the Federal Reserve will soon resume its rate-cutting cycle to counteract the expected economic drag from higher tariffs. The divergence in policy outlook between the dovish Fed and a potentially more hawkish BoJ continues to favor JPY strength over the medium term.
Monday’s data out of Japan offered mixed signals. While nominal wages grew 3.1% year-on-year in February—up from a revised 1.8% in January—real wages contracted for a second consecutive month, falling 1.2% due to elevated consumer inflation, which stood at 4.3%. However, strong outcomes from spring wage negotiations, which saw average wage increases of 5.47%, added to expectations of continued policy tightening by the BoJ.
In contrast, markets now anticipate at least four rate cuts from the Fed before the end of 2025, with the first expected as early as June. Fed Chair Jerome Powell recently emphasized a cautious approach, acknowledging the inflationary risks posed by Trump’s tariff measures. Meanwhile, Trump called for immediate rate cuts, asserting that the U.S. economy remains resilient.
In the absence of major U.S. economic data on Tuesday, focus shifts to upcoming speeches by Fed officials, including San Francisco Fed President Mary Daly, as well as the release of the FOMC meeting minutes on Wednesday and the U.S. CPI data on Thursday.
Technical Outlook
From a technical perspective, the USD/JPY pair remains vulnerable below the key 148.00 resistance level. The daily chart shows bearish momentum, with oscillators in negative territory and far from oversold conditions—suggesting more downside may lie ahead.
Immediate support is seen at the 147.00 mark, with further losses potentially exposing the 146.00 level and the 145.40 zone. A sustained drop below 145.00 could pave the way for a retest of the multi-month low near 144.55, and possibly even extend toward the 144.00 mark.
On the upside, a decisive move above 148.15 could trigger a short-covering rally, targeting 148.70 and 149.00. The next resistance zone lies around 149.35–149.40, with a break above likely to open the path toward the psychological 150.00 threshold.
In the current climate of heightened uncertainty and policy divergence, the path of least resistance for USD/JPY appears to favor the Japanese Yen.
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