Written by: Rania Gule, Senior Market Analyst at XS.com – MENA
In light of the sharp volatility that has gripped the global currency market in recent days, the Japanese yen stands out as one of the key assets attracting market attention. After retreating from its two-month high against the US dollar, the yen is trading near the critical support level of 151.00 this Friday. This reflects a state of tension between macroeconomic factors and political and financial expectations influencing the Japanese currency.
With ongoing geopolitical risks and the divergence in monetary policies between the Bank of Japan and the Federal Reserve, it appears that the yen faces multiple challenges that make its near-term trajectory uncertain.
Overall market sentiment has shifted towards “risk appetite,” diminishing the yen’s appeal as a safe-haven asset. This shift is primarily attributed to escalating trade tensions between the United States and Japan, with growing concerns that Japan could become a potential target for new tariffs imposed by US President Donald Trump. These policies not only threaten bilateral trade relations but also weaken investor confidence in the yen as a reliable investment tool during economic uncertainty.
Additionally, the US dollar’s recovery from its lowest levels in over a week has added further pressure on the yen, pushing the USD/JPY pair above 153.00 in recent days.
From my perspective, a sharp decline in the yen’s value seems unlikely at the moment due to increasing expectations that the Bank of Japan will continue tightening its monetary policy. This outlook has been reinforced by Wednesday’s data, which showed a rise in Japan’s real wages, further supporting the yen.
Moreover, Japanese Finance Minister Katsunobu Kato affirmed the persistence of inflationary conditions, noting that while prices continue to rise, the end of deflation has not yet been achieved. These remarks, along with Bank of Japan board member Naoki Tamura’s call for accelerating the pace of interest rate hikes, reflect a hawkish stance from the central bank. The market now largely anticipates a 25-basis-point rate hike at the September meeting, which could provide further support for the yen against major currencies.
On the other hand, the Federal Reserve appears to be moving in a completely different direction, especially with emerging signs of a slowdown in the US labour market. Markets are now pricing in two interest rate cuts before the end of the year. The JOLTs job openings report showed a decline in available positions, alongside a drop in the ISM Services PMI, both indicating weakening US economic activity. I believe this monetary policy divergence between Japan and the United States could narrow the interest rate differential, giving the yen a competitive edge despite its low-yield nature.
Today, the market focus is on upcoming US economic data, particularly the Non-Farm Payrolls (NFP) report, which is expected to have a significant impact on the US dollar’s movement. If the data comes in weaker than expected, the dollar could face additional downward pressure, potentially allowing the yen to gain some ground. Until then, however, the yen remains vulnerable to geopolitical developments and broader market movements.
At this juncture, I can say that the Japanese yen stands at a crossroads, where economic and political factors intertwine to create a complex and uncertain environment. At the same time, rate hike expectations support the yen, geopolitical risks and overall market sentiment set clear limits on its ability to achieve substantial gains.
For investors, the key lies in closely monitoring upcoming economic data from both Japan and the US, along with any political developments that could impact bilateral relations. Given these conditions, the yen will likely continue playing a critical role in global currency markets, with mixed prospects for its near-term performance.
Technical Analysis of (USDJPY) Prices:
The price action on the hourly chart shows the continuation of the downtrend after breaking the key support level at 152.50-152.45. This breakdown coincided with a bearish crossover of the 100-day and 200-day simple moving averages, reinforcing the negative momentum. As a result, the decline accelerated below 152.00, indicating that selling pressure remains strong, with a potential further drop toward the intermediate support at 151.50, which serves as a crucial pivot before testing the psychological level of 151.00, followed by the major historical support at 150.60.
Despite the prevailing downtrend, the pair may experience a short-term upward correction, as prices attempt to rebound from the recorded low at 151.00. However, any recovery will face strong resistance at 152.50, a key pivot level and a significant hurdle for the bulls. If this level is breached, we could see a wave of short-covering that may push the price toward the 153.00 zone, followed by the next obstacle at 153.70-153.80, where the 50% Fibonacci retracement level intersects.
The bearish scenario remains the most likely as long as the price stays below 152.50, with technical indicators reflecting continued downside pressure. If the pair fails to establish a strong rebound, a close below 151.00 could support a deeper decline toward 150.60, followed by 150.00. Therefore, traders remain watchful of how the price interacts with these key levels to confirm the next directional move.
Support levels: 151.50, 151.00, 150.60
Resistance levels: 152.50, 153.00, 153.70