Japanese Yen Surges Near Two-Week High Against USD on BoJ Rate Hike Bets and Safe-Haven Appeal
The Japanese Yen (JPY) extended its rally during Thursday’s Asian session, climbing close to a two-week high against the US Dollar (USD). This strength underpinned by a cocktail of bullish domestic fundamentals, growing expectations of Bank of Japan (BoJ) rate hikes, and an escalating global risk environment that revived the Yen’s safe-haven allure.
BoJ Rate Hike Hopes Reinforced by Stellar Domestic Data
At the heart of the Yen’s bullish momentum is an unexpected jump in Japan’s Core Machinery Orders—a leading indicator of future capital spending. The indicator soared 13.0% in March, defying market forecasts for a 1.6% contraction. This marks the most significant monthly increase in nearly two decades and sends a powerful signal that Japan’s economy is recovering faster than expected from its recent recessionary phase.
The strong data reinforces expectations that the BoJ could continue normalizing its ultra-loose monetary policy. Having exited negative interest rates earlier this year for the first time since 2016, policymakers are now perceived as increasingly open to further tightening. Rising wage pressures and a sustained uptrend in inflation metrics support this narrative.
BoJ Officials Signal Confidence in Policy Tightening Path
BoJ officials have made it clear that they are paying close attention to wage dynamics and the broader inflation trend. Investors believe that if current conditions persist—particularly if rising wages translate into stronger domestic consumption—the central bank will be compelled to hike rates again later in 2025.
While the timing remains uncertain, the market is gradually pricing in further hikes, lending structural support to the JPY. Speculative dip-buying has emerged in recent sessions, as traders position for a more hawkish BoJ amid improving macro fundamentals.
Vice Finance Minister Mimura: No FX Tensions With the US
Japan’s top FX diplomat, Atsushi Mimura, calmed fears of potential friction between Tokyo and Washington over the Yen’s strength. Speaking Thursday, Mimura emphasized that no discussions on exchange rates took place during recent finance ministerial meetings. He reiterated that Japan and the US share a common understanding that exchange rates should be determined by market forces.
This assurance helped soothe market concerns about possible intervention or tension between the two allies. In the past, a rapidly strengthening Yen often prompted diplomatic dialogues or coordinated action, but the current environment appears devoid of such risks—for now.
US Fiscal Health in Focus as Trump’s Tax Bill Looms
Meanwhile, the US Dollar remains on the defensive as concerns about fiscal irresponsibility grow louder. President Donald Trump’s proposed tax overhaul, dubbed the “One Big, Beautiful Bill,” expected to cost between $3 trillion and $5 trillion over the next decade. A House vote is expected as early as Thursday.
The sheer scale of the proposed deficit spending is rattling investors, especially amid already high US debt levels. The specter of ballooning deficits threatens to undermine the long-term credibility of US fiscal policy and has triggered a steady unwinding of long-USD positions.
Fed Dovishness Adds to Dollar’s Woes
Layered atop fiscal concerns are expectations that the Federal Reserve will cut interest rates at least once or twice more before the end of 2025. Several Fed officials have expressed caution over weak business sentiment and lingering risks from geopolitical uncertainty.
This dovish bias, combined with recent lackluster Treasury auctions—particularly a weak 20-year bond sale—has deepened the bearish sentiment surrounding the Greenback. Foreign demand for US assets appears to be softening, further weakening the USD across the board, especially against currencies like the JPY that are supported by hawkish shifts at home.
US-China Trade Tensions Escalate Again
Another driver of Yen strength lies in worsening trade relations between the US and China. The Biden administration’s decision to issue guidance discouraging US companies from using Huawei’s Ascend AI chips triggered a furious response from Beijing. China’s Commerce Ministry accused the US of violating Geneva trade rules and engaging in unilateral “bullying and protectionism.”
These renewed trade frictions have cast a shadow over the global growth outlook and pushed investors back into defensive assets, with the Japanese Yen being a top beneficiary of this safe-haven shift.
Geopolitical Hotspots Keep Japanese yen Demand Elevated
Beyond trade, broader geopolitical turmoil is also supporting the JPY. In the Middle East, Israeli airstrikes on Gaza have intensified, and aid convoys remain blocked, exacerbating the humanitarian crisis. Simultaneously, in Europe, Trump reportedly told EU leaders that Russian President Vladimir Putin not interested in ending the war in Ukraine, believing he holds the upper hand militarily.
These flashpoints have kept risk appetite muted across global markets. As a traditional haven during times of uncertainty, the Yen continues to benefit from investors looking to hedge against geopolitical shocks.
US-Japan Trade Talks Offer Some Optimism
In contrast to the worsening US-China dynamic, trade relations between Washington and Tokyo appear more constructive. Japan’s Trade Minister Ryosei Akazawa expected to attend the next round of talks with US Trade Representative Jamieson Greer, while US Treasury Secretary Scott Bessent may also join the discussions.
Progress toward a potential bilateral trade deal could offer longer-term economic benefits for Japan and may provide an additional layer of support to the JPY if negotiations bear fruit.
All Eyes on US Data and Flash PMIs
Looking ahead, markets will closely monitor Thursday’s release of flash PMI surveys, which will provide updated snapshots of economic activity in major economies. Any downside surprise in US PMIs could further pressure the Dollar.
Additionally, the usual slate of US macroeconomic data—including weekly Initial Jobless Claims and Existing Home Sales—could shape near-term expectations for Fed policy and, by extension, influence the trajectory of the USD/JPY pair.
Technical Outlook: Japanese yen Risks Deeper Correction
Technically, the USDJPY pair appears vulnerable to further downside as long as it remains below key resistance levels. Momentum indicators are pointing lower, and with risk sentiment fragile, the path of least resistance seems skewed to the downside.
If risk aversion intensifies and BoJ policy expectations harden further, a test of the 152.00 area cannot be rule out. On the upside, any meaningful rebound would likely require a shift in Fed rhetoric or a sudden improvement in US macro data—both of which seem unlikely in the near term.
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