Japanese Yen seems poised to appreciate further amid hawkish BoJ expectations

The Japanese Yen remains on the front foot against a softer USD for the third straight day. Bets that the BoJ will hike rates again and a weaker risk tone underpin the safe-haven JPY. The emergence of fresh USD selling further exerts downward pressure on the USD/JPY pair. The Japanese Yen (JPY) trades with a positive bias against its American counterpart for the third straight day on Thursday and for now, seems to have stalled the previous day’s late pullback from the weekly high. Japan’s wholesale inflation data released on Wednesday indicated that companies continued to pass on costs to consumers and added to fears of more entrenched price increases in Japan. This is expected to keep the Bank of Japan (BoJ) on track to raise interest rates further, which, in turn, is seen underpinning the JPY. Moreover, a slight deterioration in the global risk sentiment – as depicted by a softer tone around the equity markets – turns out to be another factor that benefits the safe-haven JPY. This, along with a modest US Dollar (USD) downtick, drags the USD/JPY pair back closer to the 146.00 mark during the Asian session. Meanwhile, the optimism led by the 90-day US-China tariff truce might cap the JPY. Moreover, reduced bets for more aggressive policy easing by the Federal Reserve (Fed) could support the USD and the currency pair. Japanese Yen bulls retain control amid BoJ rate hike bets and cautious market mood Japan’s Producer Price Index (PPI) released on Wednesday highlighted persistent price pressure and backs the case for further monetary policy normalization by the Bank of Japan. Moreover, BoJ Deputy Governor Shinichi Uchida reiterated that the central bank will keep raising rates if the economy and prices improve as projected. Meanwhile, investors turned cautious ahead of Thursday’s release of the US Producer Price Index and Federal Reserve Chair Jerome Powell’s appearance later during the North American session. This further contributes to the Japanese Yen’s relative outperformance against its American counterpart for the third consecutive day. In the meantime, a softer-than-expected US Consumer Price Index released on Tuesday reaffirmed market bets that the Fed will cut interest rates further. This, in turn, fails to assist the US Dollar to capitalize on the overnight bounce from the weekly low and further contributes to the offered tone surrounding the USD/JPY pair. Traders, however, have scaled back their expectations for a more aggressive policy easing by the Fed in the wake of the US-China trade optimism, which helped to ease recession fears. This might hold back the USD bears from placing fresh bets and keep a lid on any further appreciating move for the safe-haven JPY. Chicago Fed President Austan Goolsbee noted that some parts of the April inflation report represent the lagged nature of the data, and it will take time for current inflation trends to show up in the data. Right now is a time for the Fed to wait for more information, try to get past the noise in the data, Goolsbee added further. Separately, Fed Vice Chair Philip Jefferson said that the recent inflation data is consistent with further progress toward the 2% goal, but the future path remains uncertain due to trade tariffs. Jefferson also noted that the current moderately restrictive policy rate is in a good place to respond to economic developments. Furthermore, San Francisco Fed President Mary Daly said that solid growth, a solid labor market, and declining inflation are where we want to be. Monetary policy is well-positioned, moderately restrictive, and the Fed can respond to whatever comes into the economy, Daly added further. USD/JPY could slide further below 146.00 and retest the weekly low set on Wednesday From a technical perspective, the USD/JPY pair struggles to capitalize on the overnight bounce beyond the 23.6% Fibonacci retracement level of the recovery from the year-to-date low set in April. Moreover, negative oscillators on hourly charts support prospects for a further intraday slide below the 146.00 mark, towards retesting the 145.60 area or the weekly low set on Wednesday. This is followed by the 38.2% Fibo. level, around the 145.35-145.30 region, below which spot prices could fall to the 145.00 psychological mark en route to the 144.70-144.65 zone. The latter represents the 200-period Simple Moving Average (SMA) resistance breakpoint on the 4-hour chart and should act as a key pivotal point. A convincing break below will suggest that the recent recovery from the year-to-date low has run out of steam and pave the way for deeper losses. On the flip side, the 146.60 area (23.6% Fibo. level) could offer immediate resistance ahead of the 147.000 round figure. A sustained strength beyond the latter might trigger an intraday short-covering rally and lift the USD/JPY pair to the 147.70 intermediate hurdle en route to the 148.00 round figure. Any further move up beyond the 148.25-148.30 hurdle might face stiff resistance near the 148.65 area, or over a one-month peak touched on Monday, which, if cleared, should allow spot prices to reclaim the 149.00 mark. Bank of Japan FAQs The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%. The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance. The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance. A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move. Source: https://www.fxstreet.com/news/japanese-yen-seems-poised-to-appreciate-further-amid-hawkish-boj-expectations-202505150211