Trade Optimism Weighs on Japanese Currency
The yen extended its weakness for a second consecutive day amid improving market sentiment driven by positive global trade developments, with the USD/JPY pair trading near 145.00 in Asian session hours—close to the two-week low touched in the previous session.
The currency pair’s decline reflects diminishing demand for the yen as a safe-haven asset, as market participants respond to growing optimism about trade relations between the United States and Asia’s largest economy.
Trade Developments Underpin Dollar Strength
The temporary continuation of tariff measures implemented by US President Trump received support from a federal appeals court ruling, providing short-term relief from trade uncertainty. “The court’s stay decision has boosted market confidence in the near-term trade outlook, encouraging investors to shift toward risk assets and reducing demand for the safe-haven yen,” analysts noted.
Meanwhile, preliminary trade framework discussions between the two nations in London marked another positive development. US Commerce Secretary Howard Lutnick characterized the framework as a foundational step toward easing global trade tensions.
The easing of risk aversion provided short-term support for the dollar, helping sustain the USD/JPY rally. However, this upward momentum faces counterpressure from growing expectations of additional interest rate hikes by the Bank of Japan this year, as domestic economic data improves and inflationary pressures broaden.
Recent economic indicators showed Japan’s first-quarter contraction was less severe than initially reported, demonstrating stronger-than-expected economic resilience.
Policy Divergence Drives Currency Dynamics
“The clear divergence between Bank of Japan and Federal Reserve policy paths has become a key determinant in USD/JPY movements,” remarked a foreign exchange strategist. Market consensus currently projects two potential Federal Reserve rate cuts in 2025, while the Bank of Japan appears poised to continue its policy normalization process.
Strong US non-farm payrolls data have led investors to reduce bets on imminent Fed rate cuts, though annualized rate reduction expectations remain at approximately 0.45% for the year.
Market attention now turns to upcoming US CPI inflation data, which will provide critical guidance for Federal Reserve policy decisions. Higher-than-expected inflation readings could reinforce the central bank’s commitment to maintaining elevated interest rates, thereby supporting the dollar.
Technical Analysis: Bullish Bias with Resistance Ahead
From a technical perspective, USD/JPY maintains a bullish bias though short-term breakout momentum appears somewhat constrained. The pair has established firm support above its 100-day simple moving average (SMA), with both intraday and hourly technical indicators continuing to signal positive momentum.
A decisive breakout above the nearby resistance level of approximately 145.30 (the two-week high) could propel the exchange rate toward the 145.60-145.65 range, with further upside potential targeting the 146.00 psychological level and potentially extending to the 146.25-146.30 zone (the May 29 high).
On the downside, the 4-hour chart’s 200-day SMA near 144.30 serves as an immediate technical support level. A breach of this support could trigger a decline toward the 144.00 handle, with further losses potentially opening the path to the 143.60-143.50 area and ultimately below the 143.00 threshold if selling pressure intensifies.
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