- The Japanese Yen continues to weaken due to concerns over Trump’s trade tariffs and their potential impact on Japan’s economy.
- The Federal Reserve’s hawkish stance boosts demand for the USD, providing support to the USD/JPY pair.
- Increasing expectations for a Bank of Japan rate hike in March are likely to cap any significant decline in the JPY.
The Japanese Yen (JPY) weakened for the third consecutive day on Wednesday, falling to a one-week low against the US Dollar (USD) during the Asian session. Concerns about the potential economic impact of US President Donald Trump’s tariffs on commodity imports, which may threaten Japan’s economic stability, along with positive sentiment in equity markets, put pressure on the JPY as a safe-haven asset. Additionally, a rise in US Dollar (USD) buying pushed the USD/JPY pair back towards the mid-153.00s in the final hour of trading.
Federal Reserve Chairman Jerome Powell’s comments on Tuesday, indicating that the US central bank is not in a hurry to cut interest rates due to concerns that Trump’s trade policies could lead to inflation, helped boost demand for the USD. Moreover, Powell’s remarks dampened expectations for a significant narrowing of the US-Japan interest rate gap, causing investors to move away from the lower-yielding JPY. However, the increasing likelihood of the Bank of Japan (BoJ) raising interest rates again may limit further losses for the JPY.
Japanese Yen Under Pressure as Trump’s Tariffs Raise Concerns Over Japan’s Economic Stability
- US President Donald Trump signed executive orders to impose 25% tariffs on steel and aluminum imports from March 12. Trump also signaled he would look at imposing additional tariffs on automobiles, pharmaceuticals, and computer chips, and promised broader reciprocal tariffs to match the levies other governments charge on US products.
- The announcement raises the risk of a further escalation of global trade tensions and threatens to negatively affect the Japanese economy. This, in turn, is seen weighing heavily on the Japanese Yen and assists the USD/JPY pair to build on a one-week-old goodish recovery move from sub-151.00 levels, or a near two-month low touched last week.
- Japan’s Finance Minister, Katsunobu Kato said earlier this Wednesday that he will assess the impact of US tariffs on the Japanese economy and respond appropriately. Separately, Japan industry minister Yoji Muto requested the US to exclude Japan from steel and aluminum tariffs. This, however, does little to provide any respite to the JPY bulls.
- Federal Reserve Chair Jerome Powell, in remarks before the Senate Banking Committee on Tuesday, struck a more hawkish tone and called the economy strong overall with a solid labor market. Powell added that inflation is closer to the 2% goal but still somewhat elevated and signaled that policymakers aren’t in a rush to push interest rates lower.
- Bank of Japan Governor Kazuo Ueda reiterated earlier today that the central bank will conduct monetary policy appropriately in order to achieve the 2% inflation target. Moreover, the recent wage growth data and the broadening inflationary pressures in the economy back the case for another BoJ rate hike move at the March policy meeting.
- Traders now look forward to the release of the latest US consumer inflation figures, which, along with Powell’s congressional testimony, will drive the US Dollar and the USD/JPY pair. The headline US Consumer Price Index is seen rising 2.9% YoY in January and the core CPI (excluding food and energy prices) coming in at a 3.1% YoY rate.
USD/JPY Faces Selling Pressure, Capped Near 154.00 at 38.2% Fibonacci Level
From a technical standpoint, a sustained breakout above the 152.75 confluence resistance could trigger a bullish momentum, supporting further upward movement for the USD/JPY pair. This level encompasses the 23.6% Fibonacci retracement of the January-February decline and the 200-day Simple Moving Average (SMA), making it a critical point for the pair.
Although the oscillators on the daily chart have been recovering, they remain in negative territory. This suggests that any subsequent upward move may face resistance and attract fresh selling pressure near the 154.00 level, which aligns with the 38.2% Fibonacci retracement. If the price clears this hurdle, the USD/JPY pair could see an acceleration towards the 154.70-154.75 area, potentially targeting the psychological 155.00 mark.
On the downside, the 153.00 round number and the 152.75 confluence provide immediate support. A decisive break below these levels would reinforce a bearish outlook, pushing the USD/JPY pair back under the 152.00 level, with the next significant support near 151.30-151.25. In the worst-case scenario, the pair could drop to sub-151.00 levels, revisiting the two-month low seen last Friday.
