The Japanese Yen (JPY) continued its decline against the US Dollar (USD) for a third consecutive session on Tuesday, sliding to its lowest level in over a week during the Asian trading hours. The move comes amid a combination of mixed Bank of Japan (BoJ) policy cues, elevated risk appetite in global markets, and investor hesitation ahead of critical US inflation data.
Political uncertainty in Japan and concerns over the economic fallout from higher US tariffs are prompting analysts to speculate that the BoJ might delay its next phase of policy normalization. However, last month’s upward revision in BoJ’s inflation forecasts still leaves room for a possible interest rate hike before year-end, tempering the extent of JPY’s weakness.
BoJ Signals vs. Market Reality
The BoJ’s Summary of Opinions released last Friday revealed that policymakers discussed resuming rate hikes if inflation and growth hold steady. This follows July’s revision in inflation forecasts, strengthening the hawkish case.
Yet, the broader economic picture remains mixed:
Japan’s inflation-adjusted real wages fell for the sixth consecutive month in June, highlighting weak household purchasing power.
Calls for fiscal stimulus are growing, particularly after the ruling Liberal Democratic Party’s electoral setback in the upper house on July 20.
These factors complicate the BoJ’s path forward, as raising rates too quickly could further burden an already fragile domestic economy.
USD Side: Fed Rate Cuts Still in Sight
While the BoJ navigates policy uncertainty, the Fed’s path appears tilted toward rate cuts. Following a disappointing July Nonfarm Payrolls (NFP) report, markets are pricing in at least two 25-bps cuts before the year ends, with the first potentially arriving in September.
This outlook prevents USD from fully capitalizing on its recent strength, keeping USD/JPY gains contained despite JPY weakness. The focus now shifts to US Consumer Price Index (CPI) data due later today, which could redefine rate-cut expectations and USD demand.
Risk Sentiment and Safe-Haven Dynamics
Global equity markets remain buoyant, with investors largely shrugging off the latest US tariff escalations. This risk-on mood is undermining demand for safe-haven assets, including the Yen. Consequently, USDJPY’s upward momentum has been supported despite limited USD buying.
What’s Next? Key Data and Events
This week’s USDJPY direction will be heavily influenced by:
US CPI (Tuesday): Potentially decisive for Fed policy expectations.
FOMC speeches (midweek): Guidance on rate-cut timing.
US Producer Price Index (Thursday): Inflation trend confirmation.
Japan Preliminary Q2 GDP (Friday): Domestic growth assessment.
Technical Analysis – USDJPY
Current Price: 146.85 (as of Asian session, August 12)
USDJPY has broken above 146.50, confirming short-term bullish momentum. The next resistance lies at 147.20, with a further push toward 148.00 possible if US CPI beats expectations. On the downside, 146.00 serves as immediate support, followed by 145.60.
RSI (H4): 61 – showing bullish bias but approaching overbought territory.
MACD: Positive histogram widening, supporting upward momentum.
Bias: Bullish above 146.00; vulnerable to reversal if CPI disappoints.
Conclusion
The Japanese yen slide is being driven by a blend of policy uncertainty at the BoJ, strong risk sentiment, and cautious USD positioning ahead of key US inflation data. While hawkish BoJ hints may keep deeper JPY losses in check, the near-term direction for Japanese yen will likely hinge on how US CPI reshapes Fed rate-cut expectations. A stronger-than-expected print could send the pair higher, while a softer outcome might cap gains or trigger a pullback.
