Even the USD/JPY currency pair has been on a downward slide. After Tokyo’s surprisingly hot CPI, it has retreated back towards the mid-143.00s. This decline represents a continuation of the strong reversal that started soon after the pair hit a two-week peak. Market participants explained that certain market headwinds have pulled in sellers for the second straight day. This is adding even more downward pressure on the USD/JPY.
As depicted in the chart above, Tokyo CPI surged in April. This increase has led to a fresh wave of buzz around potential monetary tightening by the Bank of Japan (BoJ). The strong inflation data has increased the attractiveness of the safe haven JPY. This triggered more short-term selling pressure on the USD/JPY pair from traders. This move, analysts think, is the market’s reaction to growing expectations for monetary tightening in Japan. This change is granting the yen traded tool an advantage over dollar large.
While USD/JPY is under pressure, USD demand overall is weak. With traders losing their recent newfound enthusiasm for the dollar, the pair is increasingly vulnerable. Specifically, they are now concerned about the increasing inflation in Japan and its implications for the market. Taken together, these factors are establishing a particularly painful environment for bullish USD/JPY. Very few market participants can take their eyes off the developments.
Sentiment across financial markets continues to be risk averse. Solid economic figures from Tokyo continue to uplift sentiment among traders. Weakening demand for the dollar reflects a major change in sentiment. In this context, some analysts observe that “Court cracks the tariff dam: Markets surf the euphoria wave,” reflecting on broader market trends that may influence currency movements.
Market professionals were quick to point out the convoluted and chaotic nature of what is currently taking place around USD/JPY. Yet the continuing pressure on the pair is not just due to domestic drivers, but rather global economic conditions. Traders are continuing to aggressively position themselves for a key shift in monetary policy. This will probably continue to support high volatility in the currency markets.
“Court cracks the tariff dam: Markets surf the euphoria wave” – source