Japanese Yen Continues Its Slide Amid Positive Market Sentiment.
The Japanese Yen (JPY) remains under selling pressure as investors embrace riskier assets, driven by optimism surrounding China’s economic stimulus and renewed hopes for a Ukraine peace deal. Traditionally seen as a safe-haven currency, the Yen tends to weaken when global risk appetite improves. This negative bias, coupled with the US Dollar’s modest rebound from a multi-month low, has enabled the USDJPY pair to sustain its upward movement, holding firm above the mid-149.00s during the Asian trading session on Tuesday.
China’s recent economic support measures have played a crucial role in shifting investor sentiment. Over the weekend, Chinese authorities announced a special action plan to boost domestic consumption, fueling confidence in the country’s economic outlook. Stronger demand in China, the world’s second-largest economy, has positive spillover effects on global trade and markets, further supporting the risk-on environment.
In addition, geopolitical developments are contributing to the market’s positive tone. US President Donald Trump expressed optimism ahead of planned negotiations with Russian President Vladimir Putin, stating that both sides may reach a ceasefire and, ultimately, a peace deal in Ukraine. The prospect of reduced geopolitical tensions is reinforcing the demand for riskier assets while simultaneously undermining safe-haven demand for the Japanese Yen.
US Dollar Recovers as Fed Rate Cut Bets Persist
The US Dollar (USD) has managed to bounce off its lowest level since October 2024, lending additional support to the USDJPY pair. However, despite the Dollar’s short-term recovery, its overall outlook remains clouded by growing expectations that the Federal Reserve (Fed) will implement multiple interest rate cuts in 2025.
Market participants are increasingly convinced that the Fed will ease monetary policy in response to signs of a slowing US economy. The probability of three separate 25-basis-point rate cuts—one each in June, July, and October—has strengthened due to the following factors:
1. Concerns Over a US Economic Slowdown: Tariff-driven economic challenges and weaker business sentiment are raising alarms about future growth prospects.
2. Easing Labor Market Conditions: The US job market, which has remained resilient throughout 2024, is now showing signs of cooling. Slower hiring and softer wage growth could prompt the Fed to act sooner than anticipated.
3. Declining Inflation Pressures: Inflation, once a major concern, has started to moderate. With price increases coming under control, the Fed has more room to shift its policy stance toward rate cuts.
Despite these factors, the US Dollar has found near-term support from better-than-expected retail sales data and a modest uptick in bond yields. The US Census Bureau’s report on February retail sales showed a 0.2% monthly increase, a rebound from the previous month’s 1.2% decline. While this growth fell short of the expected 0.7% rise, it nonetheless suggested that consumer spending is stabilizing.
The upcoming release of US Building Permits, Housing Starts, and Industrial Production data on Tuesday will provide additional clues about the state of the US economy. However, the primary focus remains on the Fed’s monetary policy decision on Wednesday, which will have a significant impact on USDJPY movements.
Bank of Japan’s Policy Outlook and Market Implications
While the US Federal Reserve is widely expected to cut rates later this year, the Bank of Japan (BoJ) appears to be moving in the opposite direction. Investors anticipate that the BoJ will continue raising interest rates, supported by positive labor market dynamics and rising inflation.
The Shunto spring wage negotiations, which concluded last Friday, revealed strong wage growth agreements between firms and labor unions for the third consecutive year. This is a crucial factor for Japan’s economic policy, as higher wages can fuel consumer spending and contribute to sustained inflation—a key prerequisite for the BoJ to justify further rate hikes.
Japan’s Finance Minister Katsunobu Kato reinforced the government’s stance on allowing market forces to dictate bond price movements. In a press conference on Tuesday, he emphasized that Japan’s 40-year government bond yield recently spiked to a record high, reflecting shifting market expectations about future monetary tightening.
While the BoJ’s potential rate hikes should, in theory, support the Yen, the currency’s recent depreciation suggests that investors remain skeptical about how aggressive the central bank will be. Many traders are waiting for clearer signals from the BoJ’s policy announcement on Wednesday, which could set the tone for the next significant move in the USDJPY pair.
Technical Analysis: Japanese yen Holds Strong Above Mid-149.00s
From a technical perspective, the USDJPY pair has successfully rebounded from its recent low, maintaining strength above the mid-149.00s. Key levels to watch include:
Immediate Resistance: 150.20–150.50 – A break above this zone could trigger further upside momentum toward 151.00.
Immediate Support: 149.00 – If the pair slips below this level, a deeper correction toward 148.50 and 147.80 could be in play.
Momentum indicators suggest that bullish sentiment remains intact for now. However, traders should remain cautious ahead of the BoJ and Fed policy decisions, as heightened volatility could lead to sharp price swings.
Market Outlook: What to Expect Next for Japanese yen?
Short-Term Outlook
The Japanese yen pair is likely to remain range-bound ahead of the BoJ and Fed meetings.
Any hawkish signals from the BoJ (such as hints at additional rate hikes) could provide a near-term boost to the Yen.
On the other hand, dovish comments from the Fed suggesting more aggressive rate cuts could further weaken the USD, potentially capping gains in USDJPY.
Long-Term Outlook
If the BoJ continues its tightening cycle, the JPY could regain some strength in the latter half of 2025.
The Fed’s policy easing could weigh on the US Dollar, making it harder for USDJPY to sustain long-term gains above 150.00.
External factors, including China’s economic recovery and geopolitical developments in Ukraine, will remain key influences on risk sentiment and JPY movements.
Conclusion
The Japanese Yen remains under pressure as global risk sentiment improves, with optimism surrounding China’s stimulus efforts and the possibility of a Ukraine peace deal reducing safe-haven demand. Meanwhile, the US Dollar has rebounded slightly but faces challenges from growing expectations of multiple Fed rate cuts in 2025.
While the BoJ’s potential tightening cycle should provide some support for the Yen, its impact may be limited unless the central bank signals a more aggressive stance. The crucial BoJ and Fed policy decisions on Wednesday will be the key drivers of the next major move in the USDJPY pair, determining whether the pair continues its upward trajectory or faces renewed downward pressure.
For now, traders should remain cautious, closely monitoring central bank commentary and upcoming economic data releases to navigate potential volatility in the forex market.
