Market Data 
- The Japanese Yen attracts sellers for the third consecutive day amid a positive risk tone.
- A modest USD bounce from a multi-month low further lends support to the USD/JPY pair.
- The divergent BoJ-Fed expectations might cap the pair ahead of central bank event risks.
The Japanese Yen (JPY) retains its negative bias amid a modest US Dollar (USD) recovery from a multi-month low and lifts the USD/JPY pair further beyond mid-149.00s, or a nearly two-week high during the Asian session on Tuesday. Furthermore, the upbeat market mood, bolstered by China’s latest stimulus measures and hopes for a Ukraine peace deal, underpins the safe-haven JPY and continues to push the USD/JPY pair higher for the third straight day.
Any meaningful JPY depreciation, however, still seems elusive in the wake of firming expectations that the Bank of Japan (BoJ) will continue raising interest rates in 2025. The bets were reaffirmed by positive results from Shunto spring wage negotiations. This marks a big divergence in comparison to the growing market acceptance that the Federal Reserve (Fed) will cut interest rates several times this year, which could cap gains for the USD and the USD/JPY pair.
Traders might also refrain from placing aggressive bets and opt to move to the sidelines ahead of this week’s key central bank event risks. The BoJ is scheduled to announce its policy decision on Wednesday, which will be followed by the outcome of a two-day FOMC meeting. Investors will look for cues about the future policy outlook, which, in turn, will play a key role in influencing and determining the next leg of a directional move for the USD/JPY pair.
Japanese Yen weakens further amid positive risk tone and some repositioning ahead of central bank event risk
- Ahead of talks on Ukraine with Russian President Vladimir Putin, US President Donald Trump expressed optimism that both sides will be able to come to a ceasefire and ultimately a peace deal. This comes on top of China’s special action plan to boost domestic consumption announced over the weekend and remains supportive of the upbeat market mood.
- Japan’s Finance Minister Katsunobu Kato spoke at his regular press conference on Tuesday and said that bond markets should dictate yield movements. Kato added that the government would respond appropriately while allowing market forces to drive bond price fluctuations. This follows a brief spike in the 40-year Japanese government bond yield to a record high.
- The preliminary results of Japan’s annual spring labor negotiations, which concluded on Friday, showed that firms largely agreed to union demands for strong wage growth for the third consecutive year. This is expected to boost consumer spending and contribute to rising inflation, which, in turn, gives the Bank of Japan headroom to keep raising interest rates.
- In contrast, traders are now pricing in the possibility of 25 basis points Fed rate cuts each at the June, July, and October policy meetings amid concerns about a tariff-driven US economic slowdown, signs of a cooling labor market, and easing inflation. This might cap the attempted US Dollar recovery from its lowest level since October 2024 touched on Monday.
- On the economic data front, the US Census Bureau reported on Monday that Retail Sales in the US grew by 0.2% in February compared to the downwardly revised decline of 1.2% the prior month. This, however, was well short of expectations for a 0.7% rise, signaling consumer caution and compelling evidence for the Fed to resume its policy easing cycle soon.
- Traders now look forward to Tuesday’s US economic docket – featuring the release of Building Permits, Housing Starts, and Industrial Production data – for some impetus. The focus, however, will remain glued to the crucial BoJ-Fed rate decisions on Wednesday, which will play a key in determining the next leg of a directional move for the USD/JPY pair.
USD/JPY could climb further towards 150.00 psychological mark; 100-period SMA on the 4-hour chart holds the key
From a technical perspective, the overnight breakout above the 100-period Simple Moving Average (SMA) on the 4-hour chart and subsequent strength above the 149.00 mark could be seen as a key trigger for bulls. Moreover, oscillators on the said chart have been gaining positive traction and support prospects for additional gains. Hence, some follow-through strength, back towards reclaiming the 150.00 psychological mark, looks like a distinct possibility. Any further move up, however, is more likely to confront stiff resistance and remain capped near the 150.75-150.80 region, representing the 200-period SMA on the 4-hour chart.
On the flip side, the 149.20 area, followed by the 149.00 mark and the 148.80 region (200-period SMA on the 4-hour chart) now seem to protect the immediate downside. A convincing break below the said support levels will suggest that the recent move-up witnessed over the past week or so has run out of steam and drag the USD/JPY pair to the 148.25-148.20 support en route to the 148.00 mark. The downward trajectory could extend further towards the 147.70 area, 147.20 region, and the 147.00 mark before spot prices eventually drop to retest a multi-month low, around the 146.55-146.50 region touched on March 11.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
