On Wednesday, the US Dollar struggled. Since then, it missed out on benefiting from a small recovery from its recent bottomest point April 22. This struggle comes amid increasing consensus that the Federal Reserve will likely lower borrowing costs further by the end of this year. As the market digests these developments, the USD/JPY currency pair shows signs of volatility, largely influenced by both domestic economic indicators and international trade tensions.
During the Asian trading session, the USD/JPY currency pair hit a high just below the 144.30 level. In light of this, analysts are making a case for intense upward actions only after some more buying momentum to guard against further downwards trends. The one-day chart shows us that technical indicators are beginning to bounce back. This bullish momentum can be seen on the 4-hour chart, leading some traders to wonder if bigger price movements are afoot. Without follow-through buying, the pair will likely have a hard time keeping upward momentum.
The US Dollar, for example, has recently rebounded from a six-week low. New selling pressure has outweighed this increase amid renewed fears about the fiscal situation. This selling pressure put unprecedented pressure on the USD/JPY cross during the Asian session. The market is currently focused on continued follow-through selling. If this trend continues, we may see spot prices pushed down to the 142.40-142.35 range, nearing this week’s weekly low of 142.10 set earlier this week.
Further complicating this double whammy is a big announcement about trade tariffs. Starting Wednesday, steel and aluminum import tariffs will double from 25% to 50%. Such a move could further exacerbate our economic ties. It would further inject new uncertainties into international trade, affecting the two currencies that make up the USD/JPY currency pair.
Japan’s economic indicators surprisingly did better. A separate, private sector survey released Wednesday showed growth in Japan’s service-sector activity last month decelerated by less than expected. The Services Purchasing Managers’ Index (PMI) came in at 51, above market forecasts of 50.8. This figure indicates an expanding services economy, a bullish sign for the Japanese Yen and contributing to its recent strength against the Dollar.
Japan’s Services PMI has been revised higher, which increases the recent positive sentiment around the Yen. This amendment further bolsters expectations around a potential BoJ interest rate increase in 2025. With wages set to grow, inflationary pressures are on the upswing. In turn, financial market participants are now expecting the central bank to sound more hawkish.
Ongoing geopolitical risks and trade tensions still are keeping the Yen attractive as a safe-haven currency. These issues may create permanent buying pressure on JPY. This is further reinforced, if not predestined, by the prospects for sustained improvement in these macroeconomic conditions in Japan.
Market participants will be watching very closely to see how spot markets react given this new context. Should the USD/JPY pair manage to retake this key level at 145.00, greater challenges would lie ahead. Look for important resistance in the 144.75-144.80, which will likely dent its advance if it gets that high.
Immediate support, as it stands now, comes in just below at the 143.50-143.45 zone. A solid break beneath this level may trigger a decline to the next round number big figure support at the big figure, 143.00. The market is still carefully optimistic as the market eyes both the domestic economic landscape and the world.