The USD/JPY pair encountered significant selling pressure on Monday, falling to the 142.00 zone during North American trading hours, as investor caution returned amid a decline in broader trade optimism. The shift in sentiment boosted demand for the safe-haven Japanese Yen. After a tentative rebound in risk sentiment last week that had pushed the pair toward the 144.00 level, the start of this week saw renewed strength in the Yen, ahead of critical domestic and US economic events.
Although Japanese markets were closed for Showa Day on Monday, market attention remains focused on the upcoming Bank of Japan (BoJ) meeting, where policymakers are expected to maintain the current interest rate at 0.50%. However, recent data showed Tokyo’s Consumer Price Index (CPI) excluding fresh food rose 3.4% year-over-year in March, suggesting persistent inflationary pressures that could prompt the BoJ to consider tightening its policy later this year.
Meanwhile, the US Dollar struggled as trade negotiations stagnated. Despite comments from Treasury Secretary Bessent suggesting progress with Asian countries and hopes for a de-escalation with China, Beijing firmly denied that any ongoing talks were taking place. China stressed that mutual respect is crucial for trade discussions. Retailers such as Temu and Shein have already raised prices for US consumers, reflecting the ongoing impact of tariffs.
Investors are also anticipating key economic data this week, starting with Wednesday’s first-quarter US GDP reading and Friday’s Nonfarm Payrolls report. Both releases are expected to influence the Federal Reserve’s monetary policy direction, with rising expectations for rate cuts if economic conditions worsen in the latter half of the year.
The shift from multilateral to bilateral trade negotiations under the Trump administration has introduced long-term uncertainties. While some speculate that US trade policies may reduce global tariffs, history suggests that such changes take years to implement due to the complexities of World Trade Organization (WTO) obligations and lengthy bilateral Free Trade Agreement (FTA) negotiations. On Monday, China also announced that no active trade talks were occurring with the US, emphasizing that trade wars result in no winners. These developments are contributing to rising economic spillovers, including higher consumer prices in sectors like retail.
On the US Dollar Index (DXY) front, the index remains confined near the 100.00 mark, awaiting direction from upcoming economic data. Key resistance levels are at 100.22 and 101.90, while support is found at 97.73 and 96.94. Investors remain cautious, watching for trade updates and potential shifts in Fed policy.
The BoJ’s meeting on Friday holds particular significance, as market participants expect that while immediate rate hikes are unlikely, stronger-than-expected inflation and ongoing global trade disruptions may influence future guidance. The timeline for a BoJ rate hike has been pushed back to later in the year, with attention turning to the September-December period. In the broader context, the Japanese Yen could continue to strengthen amid slower global growth and the more accommodative policies of major central banks, including the Fed, BoE, and ECB, which have all signaled a readiness to ease policy if economic risks rise.
USD/JPY Technical Outlook:
From a technical perspective, USD/JPY shows clear bearish signals, currently trading around the 142.00 level, down 1.14% on the day and near the bottom of its daily range between 141.98 and 143.89. The Relative Strength Index (RSI) stands at 38.71, signaling a neutral stance, while the Moving Average Convergence Divergence (MACD) offers a modest buy signal, creating a mixed technical backdrop. However, the Awesome Oscillator at −3.98 and the Commodity Channel Index (CCI 20) at −52.62 remain neutral to negative, supporting a bearish outlook.
The 20-day Simple Moving Average (SMA) at 144.40, the 100-day SMA at 151.24, and the 200-day SMA at 150.02 all sit above the current price, reinforcing the downward momentum. Short-term dynamics also offer little relief, with the 10-day Exponential Moving Average (EMA) at 142.94 and the 10-day SMA at 142.37 acting as immediate resistance levels. Key resistance zones to watch are 142.37, followed by 142.94 and 143.18. For a shift in momentum, the pair would need to break above these levels, but for now, the risks appear tilted to the downside.
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