Japanese Yen hits fresh weekly high against USD amid divergent BoJ-Fed expectations

The Japanese Yen draws support from BoJ rate hike bets and the global flight to safety.

Trade jitters and escalating geopolitical tensions continue to benefit safe-haven assets. 

The divergent BoJ-Fed expectations also exert downward pressure on the USD/JPY pair.

The Japanese Yen (JPY) attracts buyers for the second straight day and strengthens to a fresh weekly high against its American counterpart during the Asian session on Thursday. Expectations that strong wage growth could boost consumer spending and contribute to rising inflation give the Bank of Japan (BoJ) headroom to keep hiking interest rates. This led to the recent sharp narrowing of the rate differential between Japan and other countries, which continues to support the lower-yielding JPY. 

Apart from this, the uncertainty over US President Donald Trump's trade policies and their impact on the global economy, along with geopolitical risks and the Turkish political crisis, drive some safe-haven flows toward the JPY. The US Dollar (USD), on the other hand, struggles to gain any meaningful traction amid increased economic uncertainty on the back of US President Donald Trump’s trade tariffs. This, in turn, exerts pressure on the USD/JPY pair and contributes to the intraday downfall. 

Japanese Yen is underpinned by hawkish BoJ expectations and persistent safe-haven demand

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• The Bank of Japan decided to keep its key policy rate steady at the end of a two-day review meeting on Wednesday and noted that the uncertainty surrounding Japan's economy, and prices remains high. 

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• In the post-meeting presser, BoJ Governor Kazuo Ueda said that the central bank wants to conduct policies before it is too late and that achieving a 2% inflation target is important for long-term credibility. 

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• The Federal Reserve, as was widely anticipated, also held interest rates steady for the second meeting in a row and signaled that it is likely to deliver two 25 basis points rate cuts by the end of this year. 

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• Meanwhile, policymakers trimmed their growth forecast for the year amid the growing uncertainty over the impact of US President Donald Trump's aggressive trade policies on economic activity. 

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• Furthermore, the Fed gave a bump higher to its inflation projection. Traders, however, still see over a 65% chance that the US central bank would resume its rate-cutting cycle at the June policy meeting. 

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• Ukrainian President Volodymyr Zelenskiy and Trump agreed to work together to end the Russia-Ukraine war. Russian President Vladimir Putin, however, rejected a proposed full 30-day ceasefire.

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• The Israeli military said that it launched a limited ground incursion into Gaza, a day after an aerial bombardment of the strip that shattered the two-month-old ceasefire with Hamas.

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• Israeli Prime Minister Benjamin Netanyahu warned of fierce war expansion, raising the risk of a further escalation of Middle East tensions and benefiting safe-haven assets, including the Japanese Yen. 

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USD/JPY seems vulnerable to weaken further and aim to test the 147.75 next relevant support

From a technical perspective, the overnight failure to find acceptance above the 150.00 psychological mark and the subsequent decline suggests that the recent bounce from a multi-month low has run out of steam. Moreover, negative oscillators on the daily chart support prospects for a further depreciating move for the USD/JPY pair. Hence, some follow-through weakness below the 148.00 mark, towards the next relevant support near the 147.75 horizontal support, looks like a distinct possibility. The downward trajectory could extend further towards the 147.30 region en route to the 147.00 round figure and the 146.55-146.50 area, or the lowest level since early October touched earlier this month. 

On the flip side, any attempted recovery might now confront an immediate hurdle near the Asian session high, just ahead of the 149.00 mark. This is followed by the 149.25-149.30 supply zone, above which the USD/JPY pair could aim to reclaim the 150.00 mark. Some follow-through buying beyond the overnight swing high, around the 150.15 region, could prompt a short-covering rally and lift spot prices to the 150.60 intermediate barrier en route to the 151.00 mark and the monthly peak, around the 151.30 region.