Japanese Yen hangs near multi-week low against USD as trade jitters temper BoJ rate hike bets

• The Japanese Yen attracts some intraday buyers on Monday, albeit lacking bullish conviction.

• Rising trade tensions, reduced BoJ rate hike bets, and domestic political uncertainty cap the JPY.

• Diminishing odds for an immediate Fed rate cut lend support to the USD and the USD/JPY pair.

The Japanese Yen (JPY) recovers slightly from a three-week low touched against a broadly retreating US Dollar (USD) during the Asian session on Monday. The global risk sentiment remains fragile in the wake of US President Donald Trump's fresh threat to impose a 30% tariff on imports from Mexico and the European Union (EU) starting on August 1. This is evident from a generally weaker tone around the equity markets and turns out to be a key factor underpinning the safe-haven JPY.

Meanwhile, traders have been scaling back their expectations for an immediate interest rate hike by the Bank of Japan (BoJ) amid concerns about the economic fallout from higher US tariffs. This might hold back the JPY bulls from placing aggressive bets on the back of domestic political uncertainty ahead of the upper house election on July 20. Furthermore, bets for a reduced number of rate cuts by the Federal Reserve (Fed) this year should offer some support to the USD and the USD/JPY pair.

Japanese Yen struggles to lure buyers as traders pare BoJ rate hike bets amid rising trade tensions

In a further escalation of trade wars, US President Donald Trump announced new tariffs on two of the biggest trade partners – Mexico and the European Union – in separate letters on Saturday. This, in turn, tempers investors' appetite for riskier assets and benefits the safe-haven Japanese Yen at the start of a new week.

Earlier last week, Trump issued tariff notices to more than 20 countries, including Japan, and also a 50% tariff on copper imports. This comes on top of declining real wages and signs of cooling inflation in Japan, which, along with domestic political uncertainty, could allow the Bank of Japan to forgo raising rates this year.

Recent media polls raised doubts about whether Japan's ruling coalition of the Liberal Democratic Party (LDP) and Komeito will be able to secure enough seats to maintain their majority at the upper house election on July 20. This adds a layer of uncertainty and should keep a lid on any meaningful JPY appreciation.

Traders pared their bets for a rate cut by the Federal Reserve later this month in anticipation of worsening inflation as a result of higher import taxes and a still resilient US labor market. This keeps the US Dollar close to a nearly three-week top touched earlier this Monday and offers support to the USD/JPY pair.

Traders now look forward to the release of US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Wednesday, respectively. The data should provide cues about the Fed's rate-cut path, which, along with speeches from influential FOMC members, will drive the USD.

Meanwhile, the aforementioned fundamental backdrop warrants some caution for the JPY bulls and backs the case for the emergence of some dip-buying around the USD/JPY pair.

USD/JPY seems poised to build on the recent move higher and aim to reclaim the 148.00 mark

Last week's sustained breakout through and a daily close above the 100-day Simple Moving Average (SMA) for the first time since February 2025 was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the currency pair is to the upside. Some follow-through buying above the 147.50-147.55 region will reaffirm the constructive setup and lift spot prices to the 148.00 mark or the June swing high. The subsequent move up could extend further towards the May swing high, around the 148.65 region, en route to the 149.00 mark.

On the flip side, any corrective pullback could be seen as a buying opportunity near the 146.60-146.55 region. This is closely followed by the 146.25 intermediate support and the 146.00 round figure. Some follow-through selling, leading to a subsequent fall below the 100-day SMA, currently pegged near the 145.80 region, might shift the bias in favor of the USD/JPY bears and pave the way for a decline towards the 145.50-145.45 area en route to the 145.00 psychological mark.