On Friday, Japanese yen came under the most pressure. The USD/JPY currency pair exploded through key 142.50-142.75 resistance, as the pair jumped to a fresh high of 143.45 in European trade. Today’s .59% increase has all traders on red alert. Analysts are waiting and watching to see how the yen/dollar pair performs as it tests significant resistance near the 143.42 level, and eventually at 144.01. But now the yen is falling as inflation indicators continue to rise. In Tokyo, the core Consumer Price Index (CPI) soared to a two-year high of 3.5%, up from 2.9% in March.
Market analysts attribute the yen’s struggles to various economic factors, including complications arising from U.S. tariffs that could impede the Bank of Japan’s (BoJ) policy decisions. As the central bank prepares for its upcoming meeting next week, expectations suggest it will likely maintain its current interest rates. This decision comes amid concerns that the BoJ may be unable to raise rates until later in the year, potentially in June or July.
Economic Indicators Impacting the Yen
Reflecting these new realities, the latest data from University of Michigan (UoM) consumer sentiment index fell to a record low 50.8 in April. This decrease from 57.0 in March is its lowest point since June 2022. The increase in consumer pessimism poses serious threats to sustained economic growth in the U.S. Such a move could have significant ripple effects that would shake up global markets, including Japan.
These inflationary pressures are clearly visible in Tokyo, where inflation has felt so rapid that it finally infiltrated the prices of staple goods. The cost of rice has increased by 93% in the last year. This record-breaking surge is causing deep concern for American families, threatening to empty household budgets, and straining spending power. The increase in the Consumer Price Index (CPI) indicates that inflation is becoming more widespread. Central banks the world over are struggling with these twin giants, at times confusing their monetary policy objectives.
USD/JPY Resistance and Support Levels
Now that USD/JPY is breaking out above key resistance levels, traders are following its progress with great interest. The nearest resistance at 143.42 is key. Should the 150.00 floor get broken, we may witness a downward test of the 144.01 support level. Immediate support levels are set at 142.44 and 142.05, which should act as a cushion to any major downside move.
The current trading dynamics suggest that market participants are increasingly factoring in the potential for a rate hike by the BoJ later this year. With the recently implemented U.S. tariffs throwing a wrench in the works, plus inflationary pressure burdening the entire economy, it’s unclear how quickly these changes could come about.
Outlook for the Japanese Yen
The Japanese yen continue to have a dire outlook. This makes it particularly vulnerable to the U.S. dollar amid heightened inflationary pressures and increasing economic uncertainty. The Bank of Japan is under increasing pressure to address surging prices. Cumulatively, these competitive advantages have created pressure to grow that has been exacerbated by external trade challenges.