Japanese Yen edges higher as BoJ tightening bets and geopolitical risks limit downside.
The Japanese Yen (JPY) moved lower against the US Dollar (USD) on Thursday, giving up early Asian session gains as market sentiment improved slightly on the back of trade deal hopes. Despite this pullback, the Yen’s losses remain modest as investors remain confident that the Bank of Japan (BoJ) is preparing for further rate hikes in 2025.
At the same time, the Federal Reserve’s hawkish hold on interest rates helped underpin the greenback, keeping the USD/JPY pair afloat. However, traders are treading carefully ahead of a key press conference by US President Donald Trump, which could sway global risk appetite and drive fresh volatility across forex markets.
BoJ Ready to Act
Minutes from the BoJ’s March 18–19 policy meeting confirmed that the central bank is prepared to tighten monetary policy further if economic conditions allow. Policymakers expressed cautious optimism regarding Japan’s inflation outlook and reiterated that they would not hesitate to raise rates again if underlying inflation remains solid.
This stance follows the BoJ’s historic exit from negative interest rates earlier in 2024. Now, as real wage growth picks up and prices continue to edge higher—especially in food and essential goods—there’s a growing sense that Japan’s deflationary era could be behind it.
BoJ Governor Kazuo Ueda emphasized this week that he remains watchful of how rising input costs are affecting the broader economy. His focus on the impact of food inflation on household spending supports speculation that the central bank may stay on a tightening trajectory, especially if wage increases and domestic demand stay strong.
Inflation Outlook Supports Tightening
The BoJ’s bullish tone on inflation is underpinned by structural factors now shifting in Japan’s favor. After decades of stagnant wages and weak domestic demand, Japan is finally witnessing sustained wage growth. Major corporations agreed to sizable pay hikes earlier this year, and this trend is expected to filter through to small- and medium-sized enterprises.
Wage growth, coupled with rising commodity import costs due to a weaker Yen, has contributed to a more persistent inflationary trend. If this continues through 2025, it will further justify another BoJ rate hike—making Japan one of the few developed economies moving against the tide of rate cuts seen elsewhere.
Markets are already pricing in a moderate increase in Japan’s interest rates next year, lending the JPY a layer of medium-term support—even as near-term market sentiment occasionally favors risk assets.
Trump Adds Trade Twist
On the trade front, President Trump injected volatility into the mix with his latest remarks on US-China relations. He downplayed expectations of a near-term deal with China, stating that he was not in a hurry and had no plans to roll back the 145% tariffs currently in place. This dampened market hopes for a resolution to the long-standing US-China trade war.
However, Trump also teased the possibility of a major trade deal announcement with another “big, highly respected” country. While details were scarce, the statement offered a glimmer of optimism and helped improve risk sentiment briefly.
This duality—no quick fix with China, but a possible new trade partnership—has injected uncertainty into global markets. While risk assets have seen mild inflows, safe-haven demand for the Yen hasn’t fully dissipated, especially with investors unsure about what Trump will announce next.
Geopolitics Keep Traders Alert
While trade is front and center, geopolitical risks are also bubbling beneath the surface, reinforcing demand for traditional safe havens like the Yen. On Wednesday, Russia and Ukraine engaged in a series of cross-border strikes, raising alarm just before the implementation of a unilateral ceasefire by President Putin, which began early Thursday.
Simultaneously, conflict in the Middle East intensified as Israel’s military claimed to have disabled Yemen’s main airport in Sanaa. The airstrip is under Houthi control and has long been a flashpoint in the region. Escalating tensions here have the potential to spill into global energy markets, further complicating the inflation outlook worldwide.
Such geopolitical hotspots tend to support the JPY, particularly during periods of increased market anxiety. Although the Yen has weakened modestly against the Dollar, its safe-haven appeal remains intact due to the global uncertainty narrative.
Fed’s Hawkish Hold Boosts USD
Meanwhile, the Federal Reserve decided to hold interest rates steady on Wednesday, opting for what markets widely described as a “hawkish pause.” Fed Chair Jerome Powell indicated that the US central bank is in no rush to cut rates and wants to wait for more clarity on the inflation and trade outlook.
The Fed’s decision to keep rates elevated has helped stabilize US Treasury yields, which in turn have supported the US Dollar. This dynamic has contributed to the modest upward pressure seen in USD/JPY.
However, despite the firm stance, Powell also acknowledged the rising uncertainty around US tariffs and global supply chains. This cautious note tempered the Dollar’s rally, and traders are now watching closely to see how the Fed navigates its next moves, especially if inflation remains sticky or geopolitical tensions escalate further.
Jobless Claims, Trump in Focus
Looking ahead, investors are keeping an eye on the upcoming US Weekly Initial Jobless Claims report. Scheduled for release during the North American session, this report will offer fresh insights into the US labor market, which remains a key metric for the Fed’s monetary policy decisions.
But the biggest market-moving event of the day could be President Trump’s Oval Office press conference at 14:00 GMT. Given his cryptic reference to a new trade deal, market participants are bracing for potential surprises that could shift risk sentiment abruptly.
If Trump announces a concrete agreement with a major trading partner—potentially outside China—it could boost equities and risk currencies while weighing on the Yen. On the other hand, if the announcement falls short of expectations or escalates trade tensions further, demand for the JPY could surge anew.
Market Positioning Reflects Uncertainty
Positioning in the USD/JPY pair reflects the market’s crosscurrents. On one hand, stronger US data and a hawkish Fed are giving the USD momentum. On the other hand, BoJ tightening expectations and geopolitical jitters are offering a safety net for the JPY.
This tug-of-war is keeping the pair within a broad trading range, with significant resistance near the 157.00 mark and support closer to 154.00. Any breakout from this range will likely depend on the outcome of upcoming risk events—including Trump’s press conference and further central bank commentary.
Volatility is expected to remain elevated in the coming sessions as traders digest these complex developments.
https://voiceoftraders.com/analysis/gold-price-near-3400-on-trade-and-war-fears
