The Japanese Yen (JPY) continues to outperform the US Dollar (USD) for the third consecutive session, holding firm through the Asian trading hours on Thursday. The USD/JPY pair remains under pressure near the 146.00 level, driven by a combination of hawkish expectations from the Bank of Japan (BoJ) and broad-based USD weakness.
Market participants are increasingly pricing in the possibility of further BoJ rate hikes, while cautious sentiment in global markets adds support to the safe-haven JPY. A comprehensive evaluation of this matter is presented in the recent Raliplen article.
JPY Gains Momentum on Hawkish BoJ Sentiment and Sticky Inflation
The latest Japanese wholesale inflation data, specifically the Producer Price Index (PPI) released on Wednesday, revealed that companies in Japan are continuing to pass on rising input costs to consumers.
This development reinforces concerns of persistent inflation, which has become a central point in monetary policy discussions. The data aligns with recent comments by BoJ Deputy Governor Shinichi Uchida, who emphasized that the BoJ may continue tightening if the economy and inflation evolve as expected.
This backdrop of entrenched price pressures supports the thesis that Japan is gradually exiting a decades-long deflationary regime, making a case for policy normalization. Consequently, market sentiment has turned more bullish on the JPY, with traders increasingly favoring it over the USD, especially in a risk-off environment.
USD Struggles as Traders Await PPI and Fed Signals
Meanwhile, the US Dollar remains subdued following softer-than-expected Consumer Price Index (CPI) data released on Tuesday. The CPI print prompted traders to revive expectations of Federal Reserve (Fed) rate cuts later this year. However, with today’s upcoming release of the US PPI and an appearance from Fed Chair Jerome Powell, markets are likely to remain cautious.
Multiple Fed officials have provided mixed signals. Chicago Fed President Austan Goolsbee highlighted the lagging nature of inflation data, suggesting that the Fed should wait for clearer trends. Fed Vice Chair Philip Jefferson noted that inflation progress remains incomplete and uncertain, citing tariff risks.
Meanwhile, San Francisco Fed President Mary Daly signaled satisfaction with the current moderately restrictive stance, noting the resilience of growth and labor markets.
These divergent views leave the Fed’s next policy move open to interpretation, but the current tone appears less hawkish than earlier in the year. This contributes to the USD’s lack of momentum, especially in the face of BoJ tightening bets and elevated JPY demand.
Geopolitical Calm Limits Yen Upside, but Risk Tone Still Favors Safe Havens
While the JPY is benefiting from monetary policy divergence, the reduced tension in US-China trade relations may act as a moderating force. Recent optimism over trade de-escalation could potentially limit the JPY’s upside, as it reduces the immediate demand for safe-haven assets. Still, broad market sentiment remains cautious, with equity markets reflecting a softer risk tone—another factor supporting the Yen.
USD/JPY Technical Outlook: Bears Eye a Break Below 146.00
From a technical analysis perspective, the USD/JPY pair is struggling to maintain any upward momentum. The recent recovery bounce appears capped below the 23.6% Fibonacci retracement level of the move from the April low, located around 146.60. Short-term momentum indicators, especially on hourly charts, show bearish divergence, suggesting that a break below 146.00 could trigger fresh downside momentum.
Key support levels to watch include:
- 145.60: Weekly low.
- 145.35–145.30: Corresponds to the 38.2% Fibo retracement.
- 145.00: Psychological support.
- 144.70–144.65: Confluence zone with the 200-period Simple Moving Average (SMA) on the 4-hour chart.
A sustained move below this region could indicate that the USD/JPY recovery has lost steam, opening the door for deeper corrections toward early-year lows.
Resistance Levels to Watch on the Upside
In case of a rebound, immediate resistance lies at 146.60, followed by the 147.00 round figure. A clear break above these could encourage short-covering and push the pair toward:
- 147.70: Interim hurdle.
- 148.00: Psychological resistance.
- 148.25–148.30: Former resistance band.
- 148.65: Monthly high reached.
- 149.00: Key psychological level and next bullish target.
A sustained rally beyond 149.00 would suggest a shift in momentum and potentially invalidate the current bearish technical structure.
Conclusion: Yen Bulls Hold the Edge, But Risks Remain Balanced
The Japanese Yen retains its intraday strength amid a combination of hawkish BoJ expectations, persistent domestic inflation, and global risk aversion. The USD/JPY pair, as a result, remains on the defensive, especially with the USD under pressure ahead of key US economic data and Fed commentary.
While factors are limiting the Yen’s upside, notably US-China trade optimism and uncertainty over the Fed’s easing trajectory, the balance of risks currently favors JPY strength, particularly if USD/JPY decisively breaks below 146.00.
