Japanese Yen Depressed as BoJ Rate Hike Bets Fades Over Global Trade Disputes
Japanese Yen continues to face pressure as diminished hopes of a Bank of Japan (BoJ) rate hike, together with local political volatility, discourage bullish tendencies. Although rising global trade tensions, especially new U.S. tariffs threats against Mexico and the EU, create some safe-haven encouragement to the Yen, the currency finds it hard to find strong direction. Meanwhile, a persistent U.S. Dollar—supported by receding prospects of a near-future Federal Reserve rate cut—keeps USD/JPY close to three-week high. Investors now look ahead to crucial U.S. inflation data and Fed speak for further guidance, with the general bias in favor of an upside in USD/JPY. KEY LOOKOUTS • Lower expectations of a Bank of Japan rate hike in 2025 remain to dampen the strength of Yen. • Safe-haven demand is rising with threats of increasing tariffs from the U.S., especially against Mexico, the EU, and Japan. • Fear of Japan’s ruling coalition holding a majority in the July 20 upper house election puts pressure on JPY sentiment. • This week’s release of the U.S. CPI and PPI, along with commentary from the Fed, will be important in determining USD direction and the path for USD/JPY. The Japanese Yen remains to trade in the absence of clear direction as opposing market pressures bear down on investor moods. While, on the one hand, escalating global trade tensions—driven by the U.S. administration’s warning that it will impose fresh tariffs on leading partners such as Mexico and the EU—have boosted safe-haven demand. Nevertheless, this Yen support is more than counteracted by decreased prospects for a Bank of Japan rate increase, dampening domestic inflation, and continuing political tensions prior to Japan’s upper house elections. At the same time, the U.S. Dollar continues to be supported by market reassessment of near-term Fed rate cut probabilities, keeping the USD/JPY pair at recent highs and pointing to a positive near-term undertone. Japanese Yen is soft in the face of lower BoJ rate hike hopes and domestic political instability. Meanwhile, the U.S. Dollar continues to remain firm on diminishing Fed rate cut hopes, maintaining USD/JPY at multi-week highs. Investors look to U.S. inflation figures for further guidance on the currency pair. • Softening inflation and falling real wages lower the chances of a BoJ rate hike in 2025. • In spite of safe-haven demand, the Japanese Yen fails to make gains on account of conflicting market signals. • Fears related to the performance of the ruling coalition in Japan’s next election are an added burden. • Sliding prospects for a Fed rate cut help the U.S. Dollar, pushing USD/JPY upwards. • New U.S. threat of tariffs on Mexico and the EU increase global risk aversion, partially supporting the Yen. • A breakout above the 100-day SMA and bullish momentum indicate further upside in USD/JPY. • Markets are waiting for U.S. CPI and PPI releases to inform expectations of future Fed policy and USD/JPY direction. The Japanese Yen continues to be battered by several fundamental factors, constraining its capacity to gain strong buying interest despite increased global trade tensions. One of the main drags on the Yen is the diminishing prospect of a Bank of Japan rate increase, as recent indicators are pointing towards easing inflation and falling real wages in Japan. These indicatives are an indication that the BoJ would likely continue its dovish stance in the coming times. Adding to this stress is growing domestic political instability, as uncertainty mounts on whether the majority in the next upper house election will be held by the ruling coalition, introducing an element of restraint among Yen traders. USD/JPY DAILY PRICE CHART SOURCE: TradingView Meanwhile, the U.S. Dollar is strongly supported as markets dial back their hope for an imminent interest rate cut from the Federal Reserve. This change in sentiment is a result of fears that higher tariffs would exacerbate inflation, combined with ongoing resilience in the U.S. labor market. Meanwhile, investors overseas remain wary as the U.S. administration escalates tariff threats against key trading partners, such as Mexico, the European Union, and Japan. This intricate blend of safe-haven demand, policy divergence, and political risk is confining the Japanese Yen in a tight range, while traders anticipate coming U.S. inflation data and Fed commentary for further direction. TECHNICAL ANALYSIS USD/JPY has a positive bias following the breakout above the 100-day Simple Moving Average (SMA) for the first time since February 2025, indicating robust upward momentum. Oscillators on the daily chart also remain in positive momentum without yet overselling, suggesting room for further upmove. A breakout sustain over the 147.50–147.55 resistance area can validate a continuation of the uptrend, which may push the pair up towards the 148.00 level and June’s swing peak at 148.65, with potential to challenge the 149.00 psychological level. To the downside, any reversal is likely to find some initial support at 146.60–146.55, followed by 146.25 and the 100-day SMA level of 145.80, below which the bullish scenario may be eroded. FORECAST As long as bullish momentum prevails, the USD/JPY pair has potential to push its rally beyond the 147.50–147.55 resistance zone. A clear breach through this level is likely to reaffirm the favorable outlook and unlock the way towards 148.00, with potential to challenge the June swing high at 148.65. In case overall U.S. Dollar strength remains intact and U.S. inflation reports favor a hawkish Fed policy, the pair has potential to target the 149.00 psychological figure in the near term as well. Conversely, if USD weakens on softer-than-forecasted U.S. inflation reports or dovish words from the Fed, USD/JPY could witness selling. A corrective pullback might find some initial support in the 146.60–146.55 zone. Further declines could target the 146.25 intermediate level, then the major 100-day SMA level at 145.80. A persistent fall below this region may turn the bias in favor of sellers, with the pair dipping to the 145.50–145.00 support area.
