Japanese Yen strengthens on safe-haven flows, USD/JPY tests 150.00 amid weaker USD

• The Japanese Yen continues to attract safe-haven flows amid renewed US-China trade tensions.

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

• A heightened level of domestic political uncertainty may deter the JPY bulls from placing new bets.

The Japanese Yen (JPY) prolongs its uptrend against a broadly weaker US Dollar (USD) for the fourth straight day and advances to a nearly two-week low during the Asian session on Friday. Renewed signs of strain in US-China trade relations, along with persistent geopolitical uncertainties, temper investors' appetite for riskier assets and drive some safe-haven flows towards the JPY. Apart from this, easing concerns about Japan’s fiscal health turned out to be another factor that contributed to the JPY's move up witnessed over the past week or so.

Meanwhile, political uncertainty in Japan remains elevated following the collapse of the ruling Liberal Democratic Party's (LDP) coalition with the Komeito last Friday. This has been fueling speculations that the Bank of Japan (BoJ) could further delay raising interest rates, which warrants some caution for the JPY bulls before placing aggressive bets. The USD, on the other hand, remains depressed amid dovish Federal Reserve (Fed) expectations and a prolonged US government shutdown, backing the case for a further appreciating move for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen retains bullish bias as global flight to safety offsets domestic political chaos

The US and China started charging additional port fees on vessels linked to each other’s fleets. This comes after the US broadened tech restrictions and China outlined tighter export controls on rare earths, fueling concerns about an all-out trade war between the world's two largest economies.

US President Donald Trump said on Thursday that he will meet Russian President Vladimir Putin in Budapest, Hungary, to work toward ending the war in Ukraine. Meanwhile, Trump is set to meet Ukrainian President Volodymyr Zelenskyy at the White House later this Friday.

In the meantime, Russia launched hundreds of drones and dozens of missiles, as well as glide bombs on Thursday, hitting gas facilities in eastern Ukraine. This keeps geopolitical risks in play and weighs on investors' sentiment, driving some safe-haven flows towards the Japanese Yen.

The ruling Liberal Democratic Party's (LDP) split with the Komeito jeopardized Sanae Takaichi's bid to become Japan's first woman Prime Minister. Takaichi advocated the former Premier Shinzo Abe's policy of heavy spending and monetary stimulus to support the economy.

The latest political developments eased concerns about Japan’s fiscal health, and the reversal of the Takaichi trade turns out to be another factor underpinning the JPY. Apart from this, expectations for an imminent Bank of Japan rate hike by the year-end further benefits the JPY.

BoJ Kazuo Ueda said this Friday that the impact of tariffs on global, US economy is being delayed which is keeping growth resilient. Ueda added that the BoJ will adjust degree of monetary support in accordance to the likelihood of our growth, inflation forecasts materializing.

In contrast, traders have been pricing in two more rate cuts by the US Federal Reserve in 2025. The bets were reaffirmed by Fed Chair Jerome Powell's dovish remarks on Tuesday, which keep the US Dollar depressed and drag the USD/JPY pair to the 150.00 psychological mark.

The US Senate rejected a House Republican’s short-term funding bill to reopen the government for the tenth time on Thursday. The repeated failure to pass the stopgap bill underscores a deadlock in Congress and fuels concerns about the economic effect of a prolonged government closure.

In the absence of any relevant US macro data, traders will continue to take cues from speeches by influential FOMC members to grab short-term opportunities. Nevertheless, the USD/JPY pair remains on track to register heavy weekly losses and seems poised to depreciate further.

USD/JPY bears await break below 50% retracement support near150.00

From a technical perspective, spot prices find support near the 150.00 mark, also representing the 50% retracement level of the upswing from the monthly low. A convincing break below could make the USD/JPY pair vulnerable to accelerate the fall towards the 149.15 region, or the 61.8% Fibo. level. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent pullback from the 153.30-153.25 region, or the highest level since February, touched earlier this month.

On the flip side, any further recovery might confront an immediate hurdle near the 150.70 region (38.2% Fibo. retracement level). This is followed by the 151.00 mark, which, if cleared, could trigger a short-covering rally and lift the USD/JPY pair to the 151.65 intermediate barrier en route to the 152.00 round figure. The momentum could extend further towards the 152.25 supply zone before bulls aim to reclaim the 153.00 mark and retest a multi-month peak, around the 153.25-153.30 region.