The Japanese Yen (JPY) remains bullish against the US Dollar (USD), having touched a one-month high due to increasing prospects of a rate hike by the Bank of Japan (BoJ). Strong growth in real wages and picking up the pace of inflation in Japan argue for more monetary tightening than possible rate cuts from the Federal Reserve due to slowing US job market data. Therefore, the divergence of policy outlook reduces the Japan-US rate differential, enhancing demand for the JPY. However, risk-on sentiment and the potential for US tariffs on Japan in its imports curtail further upside. Traders have now pivoted to the US ADP report and ISM Services PMI for intraday market guidance, and USD/JPY is due to challenge the 153.00 level and key technical supports.

KEY LOOKOUTS

• Stretched real wages and inflation in Japan strengthens prospects for additional BoJ rate increases, underpinning the Japanese Yen against the US Dollar.

• A weakening US job market increases the likelihood of Fed rate cuts, which will further narrow the Japan-US rate gap and put pressure on the USD/JPY pair.

• Investors are cautious as potential US trade tariffs on Japan may affect economic relations, adding uncertainty to JPY’s bullish momentum.

• The USD/JPY pair is capped at 154.00, and a break below 153.00 may lead to further downside, testing the 100-day SMA near 152.45.

The Japanese Yen managed to remain strong against the US Dollar even as expectations for a Bank of Japan rate hike continue, found being supported by rising real wages and inflation. However, weakening US job market data fuels speculation of Federal Reserve rate cuts and tightens the Japan-US rate differential, adding further downward pressure on USD/JPY. However, it remains capped by risk-on sentiment and concerns over potential US trade tariffs on Japan. At these levels, with the pair toying with 153.00, traders are being cautious, and now market participants are looking for key US economic data – first, the ADP report followed by ISM Services PMI, to give them further direction.

The Japanese Yen is still gaining on the US Dollar due to BoJ rate hike expectations and the narrowing Japan-US rate differential. However, risk-on sentiment and potential US trade tariffs on Japan limit further gains. Traders now focus on key US economic data for short-term direction.

• Rising real wages and inflation in Japan strengthen the case for further monetary tightening, boosting the Japanese Yen.

• Poor US job data raises the prospect of cuts in Federal Reserve rates, narrowing the Japan-US rate differential and putting pressure on the USD.

• The pair is trading at the 153.00 handle, and a break below could send it to the 100-day SMA around 152.45.

• Market optimism about trade negotiations between the US, Canada, and Mexico limits the safe-haven appeal of the Yen.

• Investors remain cautious as Japan is likely to be a part of US tariffs, which may affect the economic relationship and market sentiment.

• Traders will look for the ADP employment report and ISM Services PMI for short-term guidance in the USD/JPY pair.

• On the upside, immediate resistance lies at 154.00. Further upside would face resistance at 154.75 and 155.25. The level of 153.00 acts as a strong support.

The Japanese Yen (JPY) maintains its bullish stance against the US Dollar (USD), driven by growing expectations of a Bank of Japan (BoJ) rate hike. Recent data showing a rise in Japan’s real wages and accelerating inflation reinforce the case for further monetary tightening, supporting the Yen’s appreciation. To date, weakening US job market data, including this week’s dismal JOLTS report, that fuels speculation the Federal Reserve would cut rates and that the two central banks pursue different policy stances, in a way cuts the Japan-US rate differential down, making JPY more interesting and weighing upon the USD/JPY which now hovers near the major 153.00 level.

USD/JPY Daily Price Chart

TradingView Prepared by ELLYANA

Despite the JPY’s strength, risk-on sentiment and worries over potential US trade tariffs on Japan prevent a stronger rally. Investors are careful because US President Donald Trump’s tariff policies can eventually target Japan, given the latter’s significant trade surplus with the US. Moreover, the potential trade breakthrough between the US, Canada, and Mexico has eased trade war concerns, and this has further reduced safe-haven demand for the Yen. Traders now look to additional key US data such as ADP employment and ISM Services PMI for further market directions. Technical, a break below 153.00 level would push USD/JPY closer to the area of the 100-day Simple Moving Average (SMA) at 152.45, while resistance is still the 154.00 level, with higher areas of resistance quoted at the 154.75 and 155.25.

TECHNICAL ANALYSIS

The USD/JPY pair continues to trade under considerable bearish pressure, trading just above the key 153.00 level. A strong breakdown below this level will lead to additional downward momentum to the 100-day Simple Moving Average near 152.45, and enhance the bearish sentiment. Daily chart oscillators are turning south but still lack overbought readings, thus allowing for some additional losses. The nearest strength will be around the psychological barrier of 154.00. Beyond this lies a pair of obstacles at 154.75 and 155.25. A continuation move above these levels could invalidate the bearish scenario and shift short-term direction toward buyers, likely targeting the 155.50-156.00 zone.

FORECAST

Even though there is some short-term bearish momentum, there are some very important resistance zones that can initiate a short-term rebound if violated. The major resistance level can be found around the psychological area of 154.00. A sustained move above this level could fuel a short-covering rally, driving the pair towards the 154.75-155.00 region. Further bullish momentum could drive the pair to challenge the 155.25-155.30 resistance zone, a crucial pivot point that, if decisively broken, could shift the near-term trend in favor of buyers. Beyond this level, the next upside target would be the 156.00 region, provided market sentiment supports a stronger USD recovery.

Expectations of further Bank of Japan (BoJ) tightening remain supportive of the Japanese Yen and may continue to put pressure on the USD/JPY pair. A break below the 153.00 key support could accelerate the selling pressure, bringing the pair to the vicinity of the 100-day Simple Moving Average (SMA) near 152.45. If this level breaks down, then further downside could be seen toward the 151.80 region, where stronger support is expected. The daily chart oscillators continue to gain negative traction, suggesting that the bearish trend may persist unless a fundamental shift occurs. In case of increased risk aversion or worsening US economic data, the pair could even test the 150.00 psychological mark, reinforcing the Yen’s strength.