Market Data 
- The Japanese Yen attracts dip-buyers following a downtick to a one-week low against the USD.
- Bets that the BoJ will raise interest rates further continue to act as a tailwind for the JPY.
- Expectations for further policy easing by the Fed undermine the USD and weigh on USD/JPY.
The Japanese Yen (JPY) regains positive traction after hitting a one-week low against its American counterpart during the Asian session on Monday amid hawkish Bank of Japan (BoJ) expectations. In fact, investors have been pricing in the possibility of more interest rate hikes by the BoJ, which pushed the yield on the benchmark 10-year Japanese government bond (JGB) to its highest level since November 2009. Apart from this, the emergence of some US Dollar (USD) selling fails to assist the USD/JPY pair to build on the early gains to the 151.00 mark.
Meanwhile, BoJ Governor Kazuo Ueda warned last week that the uncertainty about US President Donald Trump’s tariff plans and their impact on the global economic outlook requires vigilance in setting monetary policy. This, in turn, is holding back the JPY bulls from placing fresh bets and lending some support to the USD/JPY pair. Traders also seem reluctant and opt to wait for this week’s important US macro releases scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI later during the North American session this Monday.
Japanese Yen continues to be underpinned by bets that BoJ will hike interest rates further
- The recent data from Japan showed solid economic growth and sticky inflation, which reaffirmed bets that the Bank of Japan will hike rates further and continue to lend support to the Japanese Yen.
- Japanese media reported that the BoJ could face pressure to hike interest rates from the US if the White House concludes that the JPY weakness is linked to the central bank’s monetary policy.
- The au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) was finalized at 49.0 for February, slightly higher than the 48.9 flash reading and marking the softest contraction in three months.
- US President Donald Trump confirmed his plans to impose tariffs on Canada and Mexico starting Tuesday and announced plans to double the 10% universal tariff on imports from China.
- The US Dollar struggles to capitalize on Friday’s strong move up to over a one-week high touched in reaction to the crucial US inflation data and further exerts pressure on the USD/JPY pair.
- A report published by the US Bureau of Economic Analysis showed that the Personal Consumption Expenditures (PCE) Price Index edged lower to 2.5% in January from 2.6% previous.
- Adding to this, the core PCE Price Index, which excludes volatile food and energy prices, increased 2.6% on a yearly basis during the reported month, down from 2.9% in December.
- Investors have been pricing in the possibility that the Federal Reserve would resume cutting short-term borrowing costs in June and see another interest rate cut in September.
- Traders now look forward to the release of the US ISM Manufacturing PMI for some impetus later this Monday, though the focus remains on the US Nonfarm Payrolls on Friday.
USD/JPY technical setup favors bears; 151.00 support-turned-resistance holds the key
From a technical perspective, the USD/JPY pair stalls last week’s recovery move from its lowest level since October 2024 near the 151.00 horizontal support breakpoint, now turned hurdle. Furthermore, oscillators on the daily chart – though they have been recovering from lower levels – are still holding in negative territory. This, in turn, suggests that the path of least resistance for spot prices remains to the downside. Hence, a subsequent fall, back toward the 150.00 psychological mark, looks like a distinct possibility. Some follow-through selling below the 149.80-149.75 region will be seen as a fresh trigger for bearish traders and drag the pair back toward the 149.00 mark en route to the 148.60-148.55 area, or the multi-month low.
However, a sustained strength beyond the 151.00 mark could trigger a short-covering rally and lift the USD/JPY pair beyond the 151.70-151.75 intermediate resistance, towards the 152.00 round figure. The momentum could extend further towards the very important 200-day Simple Moving Average (SMA), currently pegged near the 152.40 region. The latter should act as a key pivotal point, which if cleared decisively will suggest that spot prices have bottomed out and pave the way for a further near-term appreciating move.
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.
