The Japanese yen was recently the strongest G-20 currency against the US dollar. Today, the USD/JPY exchange rate hit new resistance at 140.18. At the moment the yen is trading at 140.38, having depreciated 0.33% on the day so far during the European session. Recent huge gains have come from a number of causes. Continuing pressure from US imposed tariffs and speculation over future decisions on monetary policy from the Bank of Japan (BoJ) adds to the mix.
The yen has gained about 1.3% since Thursday, as the US dollar comes under pressure against all major currencies. President Trump has accused Japan of intentionally keeping the yen weak to bolster its export sector, contributing to market speculation about potential moves by the US to address the exchange rate. Investor anxieties persist, given the potentially calamitous effects this would have on financial stability in the United States.
USD/JPY Market Movements
As of writing, today’s low in the USD/JPY pair is at this important 140.18 support level. Traders are keeping an eye on this level for a possible breakout or breakdown. Presently, it trades under key resistance levels at 141.16 and 141.85, a sign that upward momentum is stalling. Some analysts are quick to note that the pair will have trouble finding momentum as the USD attempts to find its footing. Overall sentiment, though, is still quite wary.
As expected by many market observers, while there is promise of corrective upside market moves, any major corrective downside still seems unlikely. The prevailing multiyear downtrend of the US dollar is in play, making it another headwind for the currency pair. Direction is always difficult to cut against, but there is visible support underneath at 139.49, granting a bit of a safety net in case the yen’s march higher persists.
Implications of US Economic Policies
The economic landscape is further complicated by President Trump’s criticisms of Federal Reserve Chair Jerome Powell and his administration’s economic policies. These unabashed criticisms have cast doubt on US financial stability, and investors have taken a gun-shy approach to trading. More than ever, the market is fraught with uncertainty. Market participants will be looking for additional clues from Federal Open Market Committee (FOMC) members scheduled to speak later today.
Despite there being no key economic releases from the US today, traders are anticipating insights that could influence expectations for future interest rate decisions. Futures markets are now pricing in only a 10% chance for a cut as early as May. They are more bullish on June, giving a 62% chance to a possible cut at that time. Such speculation over potential monetary policy adjustments would go on to introduce a new layer of complexity to trading dynamics for the USD/JPY pair.
Upcoming Bank of Japan Policy Meeting
The BoJ, for one, is preparing for its monetary policy meeting late next week. Today’s inflation data should be hugely important to their thinking. Longer term, the most recent data reinforces expectations that core Consumer Price Index (CPI) measures are trending below prior year levels. This unexpected drop has muddled the picture for Japan’s rates outlook. Analysts are expressing concern over the risks US tariffs pose to inflation and growth. Consequently, investors are more convinced than ever that the BoJ will wait even longer before marching ahead with further rate increases, now expected for later this year.
Against this macroeconomic backdrop, the U.S. central bank should proceed with caution in its next gathering. But investors are still looking for signals. Second, they want to see whether talks related to US tariffs and US-Korea economic relations will lead to any progress that would affect the yen’s strength in the near future.