The Japanese Yen has continued to lose ground after hitting a multi-week high against the US Dollar just the day before on Monday. This retreat comes as President Trump has been making waves with his latest tariff threats, while US bond yields show signs of recovery, all of which bolster USD/JPY.
On Tuesday, the Yen found itself under significant selling pressure in Asia, moving away from the peaks it had reached against the USD. Investors are on edge about Trump’s trade tariffs possibly driving up inflation, which has, in turn, sparked a modest rebound in US Treasury bond yields. The US Dollar has also enjoyed a solid bounce back from its lowest level since mid-December, pushing the USD/JPY pair beyond the middle of the 155.00s.
Yet, any significant drop in the Yen seems out of reach as the belief grows that the Bank of Japan (BoJ) is likely to raise interest rates even further. On the flip side, speculation that the Federal Reserve (Fed) could cut borrowing costs twice before the year ends may act as a speed bump for US bond yields and the USD. This scenario is likely to cap any gains in the USD/JPY pair. Traders will be keeping a keen eye on US macroeconomic data later in the North American session, but their primary focus will be on the two-day Federal Open Market Committee meeting kicking off today.
Concerns about the economic hit from Trump’s proposed tariffs are putting pressure on the Yen. Trump announced plans to impose tariffs soon on pharmaceutical and computer chip producers, alongside aluminum, copper, and potentially extending to steel and other sectors. His administration recently pressed pause on imposing emergency 25% tariffs on Colombian imports, following an agreement with Colombia on the issue of illegal migration.
In parallel, Scott Bessent, freshly confirmed as the US Treasury Secretary, is advocating for a broad-based import tariff starting at 2.5%, to be raised incrementally each month. Meanwhile, the 10-year US government bond yield is recovering from its lowest point seen recently, giving the US Dollar a boost while the lower-yielding Yen falters. The BoJ, after hiking rates to levels unseen since 2008, reaffirmed its intent to continue adjusting its policy rate and monetary stance should its January outlook come to fruition.
On the labor front, Japan’s top business and labor leaders agreed on the importance of sustaining momentum for wage increases this year, a factor potentially allowing the BoJ to tighten its policy further and manage Yen weakness. The BoJ announced a ¥200 billion initiative through outright commercial paper purchases, and Japan’s Economy Minister Ryosei Akazawa pledged to closely monitor the rate hikes’ effects.
Looking ahead, Tuesday’s US economic indicators, including Durable Goods Orders and the Richmond Manufacturing Index, will be closely watched. However, all eyes will be firmly fixed on the FOMC meeting, which is likely to shape USD price trends and provide fresh momentum for the USD/JPY pair.
Technically, the USD/JPY could be poised for fresh selling at higher levels. The chart shows a clear breakdown below a long-standing ascending trend-channel, which sets a bearish tone. Daily oscillators are beginning to pick up negative momentum, suggesting a downward bias for USD/JPY. As a result, any rallies might present selling opportunities around the 156.00 mark, with resistance near 156.60-156.70.
Conversely, the 155.00 level now acts as an immediate buffer against further drops, just ahead of the horizontal zone at 154.55-154.50 and the psychological level of 154.00. An ongoing selling trend could confirm the short-term bearish view, potentially dragging the USD/JPY towards interim support at 153.30 and further to the 153.00 mark.
Bank of Japan FAQs
The Bank of Japan, or BoJ, is the central bank responsible for guiding Japan’s monetary policy. Their primary objective is to maintain price stability, aiming for an inflation target of roughly 2%.
Back in 2013, the BoJ embarked on an ambitious ultra-loose monetary policy to kickstart the economy and combat low inflation. They implemented Quantitative and Qualitative Easing (QQE), essentially printing money to buy assets like government and corporate bonds. By 2016, they took it a step further with negative interest rates and direct control of 10-year government bond yields. By March 2024, a shift occurred as the BoJ began raising interest rates, stepping away from its ultra-loose stance.
This immense stimulus initially weakened the Yen against its major currency rivals. The situation worsened through 2022 and 2023 when other central banks raised rates sharply to curb soaring inflation, creating a growing policy gap that devalued the Yen. The tide shifted somewhat in 2024 as the BoJ moved away from its accommodating policy stance.
The Yen’s depreciation, coupled with rising global energy prices, led to inflation in Japan surpassing BoJ’s 2% target. The anticipation of rising wages in Japan also fueled this inflationary trend.
