Japanese Yen strengthens amid a global flight to safety, BoJ rate hike bets

The Japanese Yen attracts fresh buyers on Thursday amid rising trade tensions.

Bets that the BoJ will continue raising rates lend additional support to the JPY. 

A modest USD pullback from a multi-week high also exerted pressure on USD/JPY. 

The Japanese Yen (JPY) ticks higher against its American counterpart during the Asian session on Thursday and reverses a major part of the previous day's losses. The global risk sentiment takes a hit in reaction to US President Donald Trump's new tariffs on imported cars. This comes ahead of Trump's impending reciprocal tariffs announcement next week and lends support to the safe-haven JPY. Moreover, the hawkish sentiment surrounding the Bank of Japan's (BoJ) policy outlook, bolstered by strong wage growth for the third straight year, further underpins the JPY. 

Meanwhile, the Federal Reserve's (Fed) forecast for two 25 basis points rate cuts in 2025 marks a big divergence in comparison to hawkish BoJ expectations. This could result in a further narrowing of the US-Japan rate differential, which contributes to driving flows toward the lower-yielding JPY. Apart from this, a modest US Dollar (USD) pullback from a three-week high drags the USD/JPY pair closer to the 150.00 psychological mark. Traders now look to the US macro data – the final Q4 GDP print, Weekly Initial Jobless Claims, and Pending Home Sales – for some impetus. 

Japanese Yen attracts safe-haven flows as Trump’s new tariffs weigh on investors’ sentiment

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• US President Donald Trump announced on Wednesday that he would impose 25% tariffs on all imported vehicles and foreign-made auto-parts on April 2, widening the global trade war. This comes on top of impending reciprocal tariffs against at least 15 countries next week and weighs on investors' sentiment, boosting demand for the safe-haven Japanese Yen.

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• Investors seem convinced that the Bank of Japan will continue raising interest rates amid expectations that strong wage growth would underpin consumption and filter into broader inflation trends. Adding to this, BoJ's new board member Junko Koeda said on Wednesday that various indicators show underlying inflation moving towards 2% inflation sustainably.

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• Meanwhile, the Federal Reserve revised its growth outlook downward amid the uncertainty over the impact of Trump's trade policies and signaled that it would deliver two 25-basis-points interest rate cuts by the end of this year. This fails to assist the US Dollar to capitalize on its recent move higher to a three-week high touched during the Asian session on Thursday.

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• Chicago Fed President Austan Goolsbee said in a Financial Times (FT) interview on Wednesday that it may take longer than anticipated for the next rate cut to come because of economic uncertainty. Goolsbee, however, believed that borrowing costs would be a fair bit lower in 12-18 months from now, though wait and see is the correct approach.

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• Separately, Minneapolis Fed President Neel Kashkari reiterated that “we've made a lot of progress bringing inflation down, still there is still more work to do.” Kashkari acknowledged that the job market has stayed strong and that policy uncertainty is complicating the Fed's job.  

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• St. Louis Fed President Alberto Musalem said that risks that inflation will stall above 2% or move higher in the near-term appear to have increased. If the labor market remains strong and second-round tariff effects become apparent, the US central bank may need to keep rates higher for longer or consider more restrictive policy, Musalem added further. 

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• The US Commerce Department reported on Wednesday that Durable Goods Orders rose 0.9% in February compared to the previous month's revised increase of 3.3%. Moreover, Core durable goods, which strip out the volatile transportation sector, increased by 0.7%. The readings were better than consensus estimates and provided a modest lift to the USD Index. 

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• Thursday's US economic docket features the release of the final Q4 GDP print, the usual Weekly Initial Jobless Claims data, and Pending Home Sales. The focus, however, will remain glued to the US Personal Consumption Expenditure (PCE) Price Index on Friday, which could provide some cues about the Fed's rate-cut path and influence the USD price dynamics. 

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USD/JPY technical setup supports prospects for the emergence of dip-buyers at lower levels

From a technical perspective, the USD/JPY pair's inability to build on the recent breakout momentum above the 200-period Simple Moving Average (SMA) on the 4-hour chart and failure near the 151.00 mark on Tuesday warrant caution for bulls. That said, oscillators on the daily chart have just started gaining positive traction and support prospects for the emergence of some dip-buyers. Hence, any further weakness below the 150.00 psychological mark could find some support near the 149.55 area. Some follow-through selling, however, could make spot prices vulnerable to accelerate the fall towards the 149.00 mark en route to the 148.75-148.70 support. The latter coincides with the 100-period SMA on the 4-hour chart, which if broken might shift the bias in favor of bearish traders. 

On the flip side, any positive move beyond the 150.50-150.60 region might continue to face hurdle near the 151.00 mark. This is followed by the monthly swing low, around the 151.30 region, which if cleared will set the stage for an extension of the recent recovery from a multi-month low. The subsequent move-up should allow the USD/JPY pair to aim towards reclaiming the 152.00 round figure.