- The Japanese Yen attracts some dip-buyers amid fading optimism over the US-China trade deal.
- Bets that the BoJ will continue raising interest rates in 2025 further lend support to the JPY.
- Dovish Fed expectations cap the USD recovery from a multi-year low and weigh on USD/JPY.
The Japanese Yen (JPY) remains on the front foot against its American counterpart through the Asian session on Thursday amid reviving safe-haven demand. US Treasury Secretary Scott Bessent tempered market expectations for a quick resolution to the US-China trade standoff, capping the market optimism and underpinning the JPY. Apart from this, hopes that Japan will strike a trade deal with the US and bets for more interest rate hikes by the Bank of Japan (BoJ) turn out to be other factors driving flows towards the JPY.
Meanwhile, hawkish BoJ expectations mark a big divergence in comparison to the prospects for more aggressive policy easing by the Federal Reserve (Fed). This further benefits the lower-yielding JPY and caps the US Dollar (USD) recovery from a multi-year low, which, in turn, is seen exerting downward pressure on the USD/JPY pair. The fundamental backdrop seems tilted in favor of the JPY bulls as traders now look to the US economic docket and trade developments for short-term impetuses later during the early North American session.
Japanese Yen attracts safe-haven flows as US-China trade deal optimism fades
- US President Donald Trump said that the 145% tariffs on Chinese imports will eventually come down substantially. Meanwhile, US Treasury Secretary Scott Bessent denied a Wall Street Journal report that the White House is considering unilaterally slashing tariffs on Chinese imports.
- Bessent’s remarks suggested that the Trump administration could be waiting for China to make the first move, which cooled some optimism that the trade war between the world’s two largest economies would de-escalate soon. This, in turn, drives some safe-haven flows towards the Japanese Yen.
- Japan’s Finance Minister Katsunobu Kato told G7 countries on Thursday that US tariffs are highly disappointing and creating uncertainties in financial market. Meanwhile, Japan’s Economic Revitalization Minister Ryosei Akazawa will visit the US for tariff talks from April 30.
- Bank of Japan Governor Kazuo Ueda said last week that the central bank may need to take policy action if US tariffs hurt the Japanese economy. Moreover, reports suggested that the BoJ will cut its economic growth forecasts and warn of escalating risks from Trump’s sweeping trade tariff.
- Investors, however, seem convinced that the BoJ will continue raising interest rates in 2025 amid the broadening inflation in Japan, which has been running at or above the 2% target for around three years. This marks a big divergence in comparison to dovish Federal Reserve expectations.
- In fact, traders have been pricing in the possibility that the Fed will resume its rate-cutting cycle in June and lower borrowing costs at least three times by the end of this year. This fails to assist the US Dollar to capitalize on a two-day-old recovery, led by easing fears over the Fed’s independence.
- Trump slammed Ukraine’s President Volodymyr Zelensky for his comments that Ukraine wouldn’t recognize Russian control of Crimea. Trump added that a deal to end the war was very close, but that Zelensky’s refusal to accept US terms “will do nothing but prolong the conflict.”
- This keeps the geopolitical risk premium in play, which, along with the divergent BoJ-Fed policy expectations, should continue to benefit the lower-yielding JPY. Traders now look to the US economic docket – featuring Weekly Initial Jobless Claims, Durable Goods Orders, and Existing Home Sales data.
USD/JPY finds some support near 38.2% Fibo. level resistance breakpoint
From a technical perspective, the overnight close above the 23.6% Fibonacci retracement level of the March-April downfall and the 143.00 mark was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on hourly charts have been gaining positive traction and support prospects for the emergence of dip-buyers near the 142.45-142.40 region. This should help limit the downside near the 142.00 round figure, below which spot prices could slide to mid-141.00s en route to the 141.10-141.00 region. The downward trajectory could extend further towards the 140.50 intermediate support and eventually expose the multi-month low – levels below the 140.00 psychological mark touched on Tuesday.
On the flip side, momentum back above the 143.00 mark might confront some hurdle near the 143.55 area or the overnight swing high. Some follow-through buying has the potential to lift the USD/JPY pair beyond the 144.00 round figure, towards the 144.35 confluence. The latter comprises 38.2% Fibo. level and the 200-period Simple Moving Average (SMA) on the 4-hour chart, which if cleared decisively should pave the way for some meaningful recovery in the near term.
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.
Discover more from Latest News Today
Subscribe to get the latest posts sent to your email.
