Japanese Yen draws support from reviving safe-haven demand amid trade concerns
- The Japanese Yen recovers further from a two-week low touched against USD on Wednesday.
- Tariff jitters benefit the safe-haven JPY, while Fed rate cut bets undermine the Greenback.
- Reduced BoJ rate hike bets could act as a headwind for the JPY and warrant caution for bulls.
The Japanese Yen (JPY) is building on the previous day's goodish recovery from over a two-week low and scaling higher for the second consecutive day against a broadly retreating US Dollar (USD). Investors remain on edge amid persistent uncertainties surrounding US President Donald Trump's trade policies, which, in turn, benefit the safe-haven JPY. The USD, on the other hand, is undermined by prospects for more interest rate cuts by the Federal Reserve (Fed) this year, bolstered by FOMC Minutes on Wednesday. This, in turn, contributes to the USD/JPY pair's intraday slide back below the 146.00 round figure during the Asian session.
Meanwhile, investors now seem convinced that rising trade tensions would add to woes for Japan’s economy and force the Bank of Japan (BoJ) to forgo raising interest rates this year. The expectations were reaffirmed by Japan's Producer Price Index (PPI) released earlier this Thursday, which hinted that inflation pressures might be cooling off. This, along with domestic political uncertainty, might hold back the JPY bulls from placing aggressive bets and help limit further losses for the USD/JPY pair. Traders now look to the US Weekly Initial Jobless Claims, which, along with speeches by influential FOMC members, would drive the Greenback.
Japanese Yen attracts safe-haven flows amid rising trade tensions
- US President Donald Trump issued a new round of trade letters, outlining individual tariff rates ranging from 20% to 50% for eight countries starting August 1. A notable aspect of the 20 letters sent so far was Trump's direct threat to increase tariffs if any countermeasures are taken.
- Moreover, Trump announced 50% tariffs on copper and has also threatened to impose levies of up to 200% on foreign drugs, fueling concerns about the economic fallout from trade tensions. This assists the safe-haven Japanese Yen to attract buyers for the second straight day on Thursday.
- Japan hopes to arrange meetings between its chief negotiator Ryosei Akazawa and US Treasury Secretary Scott Bessent during his visit to the World Expo on July 19. Japan also aims to secure a call prior to the meeting, and possibly a meeting between Prime Minister Shigeru Ishiba and Bessent.
- Minutes from the June 17–18 FOMC meeting released on Wednesday indicated that policymakers anticipate that rate cuts would be appropriate later this year and that any price shock from tariffs could be temporary or modest. This is seen weighing on the US Dollar and the USD/JPY pair.
- A report released by the Bank of Japan on Thursday revealed that Japan's Producer Price Index (PPI) fell 0.2% in June and rose by 2.9% compared to the same time period last year. The readings were in line with estimates, though the annual rate marked a deceleration from May's 3.3%.
- Moreover, data released earlier this week showed that the growth in Japan's nominal wages decelerated for the third straight month in May 2025, and inflation-adjusted real wages posted the steepest decline in 20 months. This backs the case for the BoJ caution in the near term.
- Recent media polls raised doubts about whether the ruling coalition of the Liberal Democratic Party (LDP) and Komeito will be able to secure enough seats to maintain their majority at the House of Councillors election on July 20. This adds a layer of uncertainty and could cap the JPY.
- Traders now look forward to the release of the US Weekly Initial Jobless Claims, due later during the North American session. Apart from this, speeches from Fed officials will be scrutinized for cues about the future rate-cut path, which should drive the USD and the USD/JPY pair.
USD/JPY bears await break below 100-hour SMA before placing fresh bets
From a technical perspective, intraday breakdown below the 23.6% Fibonacci retracement level of the recent move up from the monthly swing low could be seen as a key trigger for the USD/JPY bears. The subsequent fall, however, finds some support near the 145.75 region, representing the 100-hour Simple Moving Average (SMA). The said area should now act as a pivotal point, below which spot prices could extend the fall towards the 38.2% Fibo. retracement level, around the 145.50-145.45 area. Some follow-through selling could eventually drag the pair to the next relevant support near the 145.00 psychological mark, or the 50% retracement level.
On the flip side, any recovery beyond the 146.00 mark might now confront resistance near the 146.25-146.30 area ahead of the 146.55 region. A sustained strength beyond the latter will suggest that the corrective pullback has run its course and allow the USD/JPY pair to reclaim the 147.00 round figure. The momentum could extend further towards the 147.60-147.65 intermediate hurdle en route to the 148.00 mark, or the June monthly swing high.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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