The Japanese Yen (JPY) opened the new week on a softer footing, continuing its underperformance against the US Dollar (USD) amid renewed doubts about an imminent policy tightening by the Bank of Japan (BoJ). At the same time, the USDJPY pair finds modest support near the 147.75 mark, rebounding slightly from Friday’s post-NFP selloff but struggling to reclaim earlier highs due to rising expectations for a September rate cut from the Federal Reserve (Fed).
This delicate balance with both central banks appearing dovish in different ways has led to choppy but range-bound trading in the currency pair. As global bond markets digest soft US labor data and investors brace for Tuesday’s BoJ meeting minutes, the Yen’s outlook remains clouded by domestic political headwinds, cautious BoJ communication, and global risk sentiment.
BoJ’s Dovish Stance Dents Japanese Yen Sentiment
Following last week’s BoJ monetary policy meeting, the central bank reaffirmed its ultra-cautious stance. While Governor Kazuo Ueda noted that the BoJ may raise rates “if the economy and inflation evolve as forecasted,” he offered no commitment or urgency, effectively pouring cold water on expectations of any near-term tightening.
The central bank also downgraded its core inflation forecast, indicating it sees price pressures moderating in the months ahead. This suggests that policymakers are not yet confident in the sustainability of inflation above their 2% target, especially with real wages still in negative territory and household consumption slowing.
Governor Ueda emphasized a data-dependent approach, stating that decisions would be made at each meeting based on incoming data without precommitment — a message markets interpreted as dovish. As a result, Yen bulls quickly trimmed their rate-hike bets.
Political Setback Adds to BoJ Delay Expectations
Adding to the downward pressure on the Yen was the ruling Liberal Democratic Party’s (LDP) poor performance in July’s elections, which weakened Prime Minister Kishida’s political capital and may slow economic reform efforts. With the BoJ often sensitive to political stability and coordination with fiscal authorities, the LDP’s setback introduces another reason for the central bank to delay tightening.
Analysts believe the BoJ may now hold back on rate hikes until Q4 2025 or later, unless inflation data shows unexpected persistence. This shift in expectations has widened the gap between Japan’s yield outlook and that of the US — although that divergence, too, may be short-lived given what’s unfolding at the Federal Reserve.
Fed Rate Cut Bets Cap USD Strength
On the US side, Friday’s weaker-than-expected Nonfarm Payrolls (NFP) report significantly increased the odds of a September rate cut by the Fed.
The economy added just 73,000 jobs in July, well below the 110,000 consensus.
June’s already soft figure was revised sharply downward from 147,000 to 14,000.
The Unemployment Rate ticked up from 4.1% to 4.2%.
Average Hourly Earnings rose 3.9% YoY, suggesting slowing but still sticky wage growth.
The market’s response was swift. The CME FedWatch Tool now shows over an 80% probability of a rate cut in September, and approximately 65 basis points of easing are priced in by year-end.
Also weighing on the Dollar was the surprise resignation of Fed Governor Adriana Kugler, a known centrist dove. Her departure sparked a decline in US Treasury yields, deepening Friday’s USDJPY sell-off from the 151.00 area to as low as 147.00.
USDJPY Technical Snapshot: Bouncing But Fragile
Technically, the USDJPY pair remains well above key support zones, with 147.00 acting as a psychological floor. However, the inability to reclaim 149.00 or higher following the post-NFP plunge shows that bullish momentum is fragile.
A clear break below 147.00 could expose the pair to deeper downside towards 145.50, especially if the Fed confirms a dovish pivot or if the BoJ minutes surprise markets with hawkish undercurrents (unlikely but possible). On the flip side, any upside above 149.00 would require a reacceleration of US yields and further weakening in risk sentiment both currently in flux.
Equities and Risk Sentiment Add a Layer of Complexity
While the Yen typically benefits from risk-off sentiment due to its safe-haven appeal, recent equity market wobbles have not resulted in substantial JPY buying. This is a notable divergence from traditional market behavior and indicates that rate differentials and policy credibility are currently dominating risk dynamics in USDJPY pricing.
Traders may be cautious about holding long Yen positions due to the BoJ’s passive posture, even in a risk-averse environment. As long as Japan’s real interest rates remain negative and the BoJ signals reluctance to normalize, the Yen may underperform despite geopolitical or market stress.
What’s Next: BoJ Minutes, US Factory Orders, and Tariff Talks
Looking ahead, markets will closely monitor:
BoJ Monetary Policy Meeting Minutes (Tuesday):
These minutes could provide a deeper look into the internal policy debate. Markets will be searching for any dissenting voices or discussion of exit strategy timelines. A dovish tone could extend Yen weakness, while any surprise hawkish hints may offer temporary relief.
US Factory Orders (Monday):
A weaker print may reinforce Fed cut expectations and cap further USD gains, while a surprise upside could trigger a relief rally in yields and the USD.
US-China and Global Trade Tensions:
With the August 12 tariff pause deadline approaching, markets are watching for movement in US-China negotiations. A breakdown could revive safe-haven demand for the Yen, while a resolution may keep risk appetite elevated and weigh on JPY.
Conclusion: Bearish Japanese yen Bias, but No Strong USDJPY Break Yet
In sum, the Japanese Yen remains under modest pressure from the BoJ’s dovishness and political uncertainty, but the lack of conviction in the US Dollar — due to soft labor data and looming Fed cuts is keeping USDJPY from staging a full-blown breakout.
Three Scenarios Going Forward:
1. JPY Weakness Continues (Base Case):
BoJ maintains dovish tone
US data mixed, Fed stays cautious
USDJPY trades between 147–149.50
2. JPY Recovery (Risk Case):
BoJ minutes hint at earlier normalization
Tariff tensions escalate, triggering safe-haven flows
USDJPY breaks below 147.00 toward 145.50
3. USD Rebound Reasserts Control (Aggressive Bull Case):
US data surprises to the upside
Fed downplays September cut talk
USDJPY pushes back toward 150–151
For now, a consolidation phase appears likely, with traders watching for stronger catalysts before committing to directional bets.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Always conduct your own research and consult a professional advisor before making investment decisions.
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