17 Mar 2025

The Japanese Yen begins the week on a weaker footing, influenced by a generally positive risk sentiment. Expectations of a hawkish stance from the Bank of Japan (BoJ) and escalating trade tensions are helping to mitigate losses for the safe-haven currency. Traders appear hesitant as they await significant decisions from both the BoJ and the Federal Reserve later this week.

As the European session approaches, the Japanese Yen (JPY) remains under pressure against the US Dollar, although the potential for further declines is somewhat limited. A slight improvement in global risk appetite, prompted by new stimulus measures announced by China over the weekend, is perceived as detrimental to the safe-haven appeal of the JPY. Nevertheless, the increasing likelihood of further interest rate hikes by the BoJ is preventing JPY bears from making aggressive moves.

Additionally, ongoing concerns regarding the economic implications of US President Donald Trump's trade tariffs and geopolitical uncertainties are contributing to the restraint on further losses. Investors are adopting a cautious approach, choosing to wait for the pivotal central bank events this week, including the BoJ's policy decision and the results of the two-day FOMC meeting scheduled for Wednesday. This situation calls for careful consideration before making any decisions regarding the continuation of the recent recovery in the USD/JPY pair from its multi-month low.

On Sunday, China's State Council unveiled a targeted action plan designed to enhance domestic consumption and introduced initiatives aimed at increasing household incomes. Additionally, Shenzhen has relaxed its housing provident fund loan regulations to invigorate the property market and alleviate existing excesses. This development is expected to bolster investor confidence while simultaneously undermining the safe-haven status of the Japanese Yen during the Asian trading session on Monday.

The outcomes of Japan's annual spring labor negotiations, which concluded on Friday, revealed that companies have proposed an average wage increase exceeding 5% for the second consecutive year. This move aims to assist workers in managing inflation and addressing labor shortages. The anticipated rise in wages is likely to stimulate consumer spending and contribute to escalating inflation, providing the Bank of Japan with further justification to continue increasing interest rates.

In the meantime, traders are intensifying their expectations that the Federal Reserve may need to implement multiple interest rate cuts this year, driven by the growing likelihood of an economic downturn linked to US President Donald Trump's trade tariffs. These expectations were reinforced by the University of Michigan Surveys released on Friday, which indicated that the Consumer Sentiment Index had fallen to its lowest level in nearly two and a half years in March.

This situation follows the release of softer US inflation data from the previous week and indications of a cooling labor market, suggesting that the US central bank might resume its policy-easing measures in June. Furthermore, market participants are currently factoring in the potential for two additional 25 basis point rate cuts during the Federal Reserve's monetary policy meetings in July and October, which has kept the US Dollar near a multi-month low.

On Sunday, Houthi leader Abdul Malik al-Houthi announced that his forces would target US vessels in the Red Sea as long as the US persists in its military actions against Yemen. This statement followed deadly US airstrikes, which the Houthi-run health ministry reported resulted in at least 53 fatalities. In response, the US Secretary of Defense affirmed on Sunday that the US would continue its military operations against the Houthis in Yemen.

From a technical standpoint, the recent inability to maintain levels above the 149.00 threshold, coupled with negative indicators on the daily chart, suggests a favorable environment for bearish traders. Conversely, if the price demonstrates sustained strength beyond this level and successfully breaks through last week's swing high near the 149.20 area, it could initiate a short-covering rally, propelling the USD/JPY pair towards the psychological level of 150.00. This momentum may further extend towards the 150.65-150.70 range, ultimately aiming for the 151.00 mark and the monthly peak around 151.30.

On the other hand, the 148.25 level is likely to provide immediate support ahead of the 148.00 mark. Should there be continued selling pressure below the 147.75-147.70 horizontal zone, the USD/JPY pair may become susceptible to a more pronounced decline towards the 147.00 level, potentially leading to a drop to the 146.55-146.50 range, which represents the lowest point since October reached last week. A decisive break below this level would be interpreted as a new signal for bearish traders, setting the stage for further declines.