- The Japanese Yen retests the monthly swing low against its American counterpart.
- Reduced bets for a BoJ rate hike in 2025 and trade uncertainties weigh on the JPY.
- A modest USD downtick weighs on USD/JPY ahead of the crucial FOMC decision.
The Japanese Yen (JPY) attracts some dip-buying during the Asian session on Wednesday and snaps a three-day losing streak against a weaker US Dollar (USD), back closer to the monthly low. Persistent trade-related uncertainties and rising geopolitical tensions keep investors on edge, which, in turn, is seen lending some support to the safe-haven JPY. However, the Bank of Japan’s (BoJ) cautious approach to unwinding its decade-long monetary stimulus could cap the JPY.
Meanwhile, US President Donald Trump and Japan’s Prime Minister Shigeru Ishiba failed to achieve a breakthrough on tariffs at the G7 summit, which might further hold back the JPY bulls from placing aggressive bets. Investors might also opt to wait for the outcome of a two-day FOMC policy meeting for cues about the Federal Reserve’s (Fed) rate-cut path. This, in turn, will influence the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair.
Japanese Yen bulls seem non-committed amid a possible delay in the timing of next BoJ rate hike
- The Bank of Japan, as was widely expected, left the benchmark rate unchanged at 0.5% on Tuesday amid rising growth risks and said that it will slow the pace of reductions in its government bond purchases from April next year. The BoJ added that Japan’s economic growth was likely to moderate and that accommodative financial conditions are expected to provide support.
- This reinforced market expectations that the central bank might forego another rate hike this year. In fact, a recent Reuters poll indicated that a slight majority of economists expect the next 25-basis-point rate increase in early 2026. This could undermine the Japanese Yen amid roadblocks on the trade front ahead of the July 9 deadline for higher reciprocal US tariffs.
- Japan’s Prime Minister Shigeru Ishiba, talking to reporters after the G7 summit on Tuesday, said that he and US President Donald Trump agreed to instruct their ministers to further engage in trade talks. Ishiba added that there are still some points on which the two sides are not on the same page, so we have not yet reached an agreement on the trade package.
- Meanwhile, Japan Machinery Orders fell 9.1% in April ––marking a sharp reversal from a 13% surge in March and the weakest reading since April 2020. Moreover, the monthly Reuters Tankan poll showed that Japanese manufacturers grew less confident about business conditions in June and expressed caution about the outlook for the next three months.
- From the US, the US Census Bureau reported on Tuesday that Retail Sales declined by 0.9% in May compared to a contraction of 0.7% expected. Adding to this, US Industrial Production also fell short of consensus estimates and contracted 0.2% in May, pointing to a softening economy and reaffirming bets for an interest rate cut by the Federal Reserve in September.
- The initial market reaction, however, turned out to be short-lived as rising geopolitical tensions in the Middle East drove safe-haven flows toward the US Dollar. Investors now look forward to the outcome of a two-day FOMC policy meeting for more cues about the future rate-cut path, which will drive the USD and provide a fresh impetus to the USD/JPY pair.
USD/JPY struggle to make it through short-term trading range hurdle, around the 145.45 area
From a technical perspective, the overnight breakout and a daily close above the 145.00 psychological mark could be seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for spot prices is to the upside. Some follow-through buying beyond the monthly swing high, around the 145.45 area, will affirm the constructive outlook and allow the pair to conquer the 146.00 round figure before aiming to test the 146.25-146.30 region or the May 29 peak.
On the flip side, any corrective pullback below the 145.00 mark might now attract some dip-buyers and find decent support near the 144.50-144.45 region, below which the USD/JPY pair could slide to the 144.00 mark. A convincing break below the latter would expose the next relevant support near the 143.55-143.50 region before spot prices eventually drop to the 143.00 round figure en route to last Friday’s swing low, around the 142.80-142.75 region.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Source: Japanese Yen sticks to positive bias; USD/JPY struggles near 145.00 ahead of Fed rate
