Japanese Yen remains on the front foot as geopolitical risks boost safe-haven assets
- The Japanese Yen attracts buyers for the second straight day amid reviving safe-haven demand.
- A modest USD downtick drags USD/JPY further away from a multi-week high touched on Friday.
- The BoJ’s dovish pause might cap JPY gains as focus shifts to the FOMC meeting this week.
The Japanese Yen (JPY) trades with a mild positive bias against its American counterpart for the second straight day on Monday amid reviving safe-haven demand, though the uptick lacks bullish conviction. Despite signs of easing US-China trade tensions, US President Donald Trump's rapidly shifting stance on trade policies keeps investors on the edge. Furthermore, geopolitical risks weigh on investors' sentiment and lend some support to the JPY. Apart from this, a modest US Dollar (USD) weakness drags the USD/JPY pair back closer to the 144.00 mark during the Asian session.
However, the Bank of Japan's (BoJ) dovish pause last Thursday might hold back the JPY bulls from placing aggressive bets. In fact, the BoJ slashed its forecasts for economic growth and inflation for the current year, forcing market participants to pare their bets for an immediate interest rate hike. Moreover, traders might refrain from placing aggressive USD bearish bets and opt to move to the sidelines ahead of a two-day FOMC meeting starting on Tuesday. This could act as a tailwind for the USD/JPY pair and limit any corrective slide from a multi-week high touched on Friday.
Japanese Yen benefits from reviving safe-haven demand amid rising geopolitical risks, trade uncertainties
- China said last week it was evaluating the possibility of trade talks with the US, fueling hopes for the potential de-escalation of tensions between the world's two largest economies. US President Donald Trump announced on Sunday a 100% tariff on all foreign-produced movies.
- Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Yemen's Iran-aligned Houthi rebels firing a missile that landed near the Ben-Gurion Airport. In response, Iran’s Defence Minister Aziz Nasirzadeh said that Tehran would strike back if the US or Israel attacked.
- Russian President Vladimir Putin said in remarks published on Sunday that Russia had sufficient strength and resources to take the war in Ukraine to its logical conclusion. This keeps the geopolitical risk in play and drives safe-haven flows toward the Japanese Yen on Monday.
- The Bank of Japan surprised with dovish guidance last Thursday and forced investors to scale back their bets for a rate hike in June or July. However, the broadening inflation in Japan and prospects of sustained wage hikes keep the door open for further policy tightening by the BoJ.
- The US Dollar struggles to capitalize on Friday's modest bounce that followed the upbeat US jobs data, which showed that the economy added 177K new jobs in April against 130K expected. Other details of the report showed that the Unemployment Rate remained unchanged at 4.2.
- The data pointed to a still resilient US labor market despite heightened economic uncertainty on the back of Trump's tariffs and concerns about renewed price pressures. Traders pushed back their expectations about the resumption of the Federal Reserve's rate-cutting cycle to July from June.
- This, however, still marks a big divergence in comparison to expectations for additional rate hikes by the BoJ in 2025 and should act as a tailwind for the lower-yielding JPY. The market focus now shifts to a two-day FOMC monetary policy meeting starting on Tuesday.
USD/JPY technical setup backs prospects for the emergence of some dip-buyers below the 144.00 round figure
From a technical perspective, the USD/JPY pair last week struggled to find acceptance above the 50% Fibonacci retracement level of the March-April downfall and faced rejection near the 200-period Simple Moving Average (SMA) on the 4-hour chart. This makes it prudent to wait for some follow-through buying beyond the 146.00 mark before positioning for an extension of the recent goodish recovery move from a multi-month low. Spot prices might then climb to the 146.55-146.60 intermediate resistance before aiming to test the 61.8% Fibo. level, around the 147.00 neighborhood.
Meanwhile, oscillators on the daily chart still hold in positive territory, suggesting that any subsequent fall below the 144.00 mark might still be seen as a buying opportunity. This should help limit the downside near Friday's swing low, around the 143.75-143.70 region, which if broken could make the USD/JPY pair vulnerable. The subsequent slide could drag spot prices to the 143.30 intermediate support en route to the 143.00 round figure and the 23.6% Fibo., around the 142.65 region.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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